Another massive petrol price hike on the cards for March
South African motorists were dealt a blow in February with petrol and diesel prices both going up by around 75 cents from Wednesday (7 February) – but daily recovery data from the Central Energy Fund (CEF) after the first week of the month shows that an even bigger hike is building for March.
According to daily snapshot data from the CEF, fuel prices in South Africa show a significant under-recovery of between R1.47 and R1.54 for petrol, and between R1.49 and R1.58 for diesel.
This means motorists face back-to-back months of petrol and diesel price hikes, which will also impact the wider economy through higher levels of inflation.
The main driver behind under-recoveries at the moment is the global oil price, which has pushed higher as geopolitical risk and tensions in the Middle East unsettled markets.
The underlying tension comes from Yemeni militant groups targeting US ships on the Southern Red Sea, where a string of attacks has forced a major re-routing of global trade.
The United States, meanwhile, has vowed more strikes against Iranian forces and their proxies in the region, according to Bloomberg.
These conditions have kept oil prices relatively high for weeks – trading close to $80 a barrel – albeit largely flat for 2024 so far.
Additional pressure on the rand has not helped with local fuel pricing.
In the first week of February, the rand moved above R19 to the dollar on the back of market disappointment that global interest rates were likely to stay higher for longer than initially hoped.
Commentary from the US Federal Reserve remained hawkish on inflation and interest rates, leading to markets and investors only pencilling in rate cuts near the middle of the year – versus the hopes of cuts starting around March.
Locally, this sentiment bleeds into the rand’s performance as well as expectations for the South Africa Reserve Bank’s next move on rates. While an early rate cut was nixed near the end of 2023, analysts now only see a cut coming in July or September.
The South African Reserve Bank has been incredibly hawkish in its tone, saying that rate cuts will only come when inflation is sustainably in the middle of its target range (ie, 4.5%), which has not yet happened.
Higher fuel prices in February – and now likely in March as well – are expected to push inflation higher in those months, dousing hope for interest rate relief in the near term.
There is some hope in that market conditions can change significantly between now and the end of the month. As was seen in January, fuel price recoveries moved from a small over-recovery at the start of the month to a sizeable under-recovery by the end – the reverse could also happen.
However, starting off with a significant under-recovery means that market conditions will have to improve dramatically over the next three weeks to avoid another big hike.
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