Big petrol price cut coming next week

 ·26 Oct 2023

South African motorists are in store for a big price cut at the pumps next week, with a lower oil price and a relatively stable rand lining up some much-needed relief.

The latest data from the Central Energy Fund (CEF) is showing an over-recovery in both the petrol and diesel price, pointing to a cut.

Petrol prices should be coming down by around R2.00 per litre, while diesel prices are looking at a R1.00 per litre drop.

While there are a few more days left to the end of the month, it is unlikely that the over-recovery will fluctuate much in the next six days.

Risks remain, particularly around global oil prices, but it would take a massive and wild swing in both the rand and oil price to push into under-recovery (price hike) territory.

Big risks ahead

The big cut in prices is entirely attributable to the movement in international product prices, which have come down from the highs recorded at the end of September, which led to a price hike in October.

International product prices are largely determined by the global oil price, which pushed to highs over $95 a barrel last month, but has since pulled back and recovered to under $89 a barrel.

Oil prices shot up two weeks ago as war between Hamas and Israel erupted in the Middle East – mainly on concerns that the conflict would spread to other nations – which raised red flags for oil prices going forward.

While these concerns are still very much present in the market, oil prices have drawn back this week on a stronger dollar. The stronger dollar has also softened the rand, with the local unit again trading above R19.00 to the dollar after recovering slightly earlier this week.

According to Bloomberg analysts, global benchmark Brent Crude oil fell below $90 a barrel after climbing 2.3% in the previous session.

However, prices could shoot up again in the near term as Israel’s Prime Minister Benjamin Netanyahu said his nation was preparing to invade Gaza.

“The country’s armed forces said they had entered northern Gaza to attack cells overnight before exiting the area,” Bloomberg said.

Netanyahu’s remarks reignited a war premium in oil futures that had been subsiding over the last few days.

“The main threats in the Middle East, which accounts for about a third of the world’s crude, include the US taking steps to curb Iranian exports and disruptions to shipping. Diplomatic efforts to avert a wider war continue,” it said.

Analysts have warned that oil prices could rise as global markets adapt to the probability of the conflict escalating, with prices likely to push back to the $90-$95 a barrel range in the near term.

Outside of the Middle East war, prices are being tempered by rising stockpiles, while markets across the world are also seeing a slump in prices, as profits from making fuels such as gasoline dip ahead of the winter season, Bloomberg said.

Fuel prices will be adjusted on Wednesday, 1 November, with the official announcement by the Department of Mineral Resources and Energy coming before then.

Read: Here is the expected petrol price for November

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