Fuel prices in South Africa have just increased, but the outlook for the rest of the year is more positive.
Petrol and diesel prices have both gone up by around 75 cents since Wednesday (7 February), with the inland price of 95 petrol increasing from R22.49 per litre to R23.24 per litre.
Early data from the Central Energy Fund also showed that fuel prices are showing a major under-recovery of between R1.47 and R1.54 for petrol and between R1.49 and R1.58 for diesel, meaning that more fuel price pain could be on the table in March.
Despite the fuel price pain, Investec Chief Economist Annabel Bishop said that Brent crude oil prices – one of the major contributing factors to fuel prices – have remained relatively subdued this year, averaging roughly $79.
Markets also expect modest to weak global demand, as OPEC+ has been less efficient in raising quotas and prices. The oil cartel has previously tried reducing supply to increase prices to raise profitability due to concerns over the passing out of fossil fuels.
“Since the pandemic, OPEC+ has attempted to keep the Brent crude oil price nearer to US$90/bbl, but over Q4.23, it started to slip and weakened further over January, although February has to date seen some stabilisation from its fall,” Bishop said.
International Energy Agency said that assuming there are no significant interruptions to oil delivery, forecasts for 2024 show a satisfactory supply due to an anticipated increase in non-OPEC+ production, which could substantially exceed the growth of oil demand and thus contribute towards stabilising oil prices.
Oil prices are thus expected to be relatively flat in 2024, averaging below $80.0bbl for Brent crude, even if there are still risks due, such as conflicts in the Middle East disrupting trade on the Suez Canal.
Moreover, the J.P.Morgan Global Manufacturing PMI showed an increase in production for the first time in over half a year, with the index stabilising at a neutral 50 level, providing a glimmer of hope that momentum is improving again.
“These outcomes add to the belief that the global economy will see a soft landing, i.e. that the pace of economic activity will show moderate expansion, but not rapid growth, which causes over-heating and rising inflation,” Bishop said.
“A mild economic growth rate, i.e. one that is below trend both for the US and globally (but definitely not recession), will have modest pressure on oil demand, which is expected to be fully met by the increase in supply from non-OPEC(+) producers.”
The rand is also expected to strengthen against the US dollar this year – another key aspect in fuel price determination as international product prices are in dollars.
Experts at Bank of America (BofA) said that the rand will probably get a boost after the market’s realisation that the dollar is overvalued.
The expected weakening in the US dollar should see improved capital flows to emerging markets, such as South Africa.
The latest fund manager survey from BofA showed that the rand is expected to end the year at R17.73/$ – far below the current R18.89/$.