Glimmer of hope for petrol prices in South Africa

 ·24 Aug 2023

While it is unlikely that South African motorists will be able to avoid a significant petrol price hike in September, economists at Nedbank are more optimistic about fuel prices in the remaining months of the year.

The latest data from the Central Energy Fund heading into the last week of August is pointing to a sizeable hike in both petrol and diesel prices in September.

Petrol is currently on track for a hike of R1.61 per litre, while diesel is expected to climb by as much as R2.76 a litre.

This is due to a massive under-recovery in fuel prices since their adjustment at the start of the month.

The under-recovery is being driven by higher oil prices – adding to the cost of international petroleum products – as well as a weaker rand, which makes it more expensive to import these products.

However, despite the coming kick at the pumps, Nedbank’s economists see fuel prices coming down in the latter months of the year, driven by dimmer demand for oil.

Commenting on the latest consumer price inflation data – published on Wednesday (22 August) – the finance group said that the drop to 4.7% CPI year on year in July was driven by reductions in the contribution by fuel and food prices, which have kept inflation sticky at higher levels for the last 12 months.

“The July inflation outcomes are encouraging. We expect inflation to remain below 6% for the remainder of the year, averaging 5.8% for 2023. The downward trend will continue to come from fuel and food prices,” the bank said.

According to Nedbank, its expectations are based on its view that the weaker global economy will contain the price of Brent crude oil, which will translate into lower fuel prices.

This has been reflected in the softer oil prices this past week, where the spot price for Brent crude has dropped in range of $82 a barrel, down from around $88 a barrel seen just last week.

Analysis from Bloomberg has pinned the lower prices on concerns emanating from China, where it’s economic resurgence is anticipated to be weaker than forecast, dulling demand.

“A rally in crude that got underway in late June has faltered over the last couple of weeks due to a deteriorating economic situation in China and signs that US interest rates will need to stay higher for longer,” it said.

“That’s overshadowed a tightening market driven by Saudi Arabian and Russian supply cuts. The curbs have helped drive a sharp slump in global oil inventories over the past month,” according to data from Kpler. “In the US, crude stockpiles fell by 6.1 million barrels last week to the lowest since December,” it added.

Economists expect oil prices to remain range-bound – at or below current levels – in the short term. Nedbank’s view is more optimistic.

Read: Brace for petrol price pain in September, experts warn

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