Bad to worse for petrol prices next week

Petrol and diesel prices have been building from a small increase in February 2024 to a much bigger hike, with a weaker rand and Red Sea tensions delivering the blow.

Month-end data from the Central Energy Fund points to a 50 cents per litre hike in prices coming for motorists when the Department of Mineral Resources and Energy (DMRE) announces the official changes for next week.

Petrol prices are currently showing an under-recovery of between 52 and 54 cents per litre, while diesel – showing rare parity with petrol – are lining up for a 47 to 51 cents per litre climb.

This is a significant deterioration in prospects for South African motorists, with projected changes moving from a flat rate at the start of the month, a 9-14 cents per litre hike in the middle of the month.

Both the rand and global oil components of the local pricing are delivering an under-recovery – but it’s the international petroleum prices that are the biggest contributers.

The local pricing is still reflecting the surge in oil prices seen at the end of last week, when separate attacks in the Middle East – on US troops in Jordan and a hit on a fuel tanker in the Red Sea – sent prices to the highest point in months.

Oil prices shot to levels last seen when the Hamas attacks on Israel filtered through to markets worrying about escalations in November 2023.

However, at the start of the new week, tensions over the attacks have simmered slightly, reversing the spike, but still leaving prices at month-long highs.

Oil is trading at about $83 a barrel, higher than the average over December and early January.

According to analysis by Bloomberg, the incidents last week mark the latest sign of flaring tensions in a region that accounts for about a third of the world’s crude output. Brent has risen around 10% this month as the situation in the Middle East intensifies.

The geopolitical tensions have also not done the rand any favours.

While the local unit is still trading below R19 to the dollar – sitting at around R18.80 by midday on Monday (29 January) – geopolitical tensions still put the market in risk-averse mode, which does not favour emerging markets.

According to Investec chief economist, Annabel Bishop, the rand has found support in global macroeconomics, however, with the United States avoiding a recession in 2023 and prospects of an interest rate cut by the US Fed looking more certain.

“The (US GDP) data staved off some concerns, strengthening the case for a soft landing for the US – which remains our central case – while also reducing some degree of market expectations on the timing of the first cut in the US interest rate cycle,” Bishop said.

For the rand, the currency will remain beholden to the US inflation outcomes, Bishop said, with no notable chance of a US cut seen before May – and prospects for a local rate cut remaining up in the air (likely landing only in July or September).

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