Trouble for petrol prices in South Africa in May

 ·5 Apr 2024

Following the latest hike to petrol prices in South Africa this week, the daily recoveries for fuel are once again off to a mixed start in the new month – with a worrying outlook for prices in May.

Motorists have just been hit with a price hike this week, with the Department of Mineral Resources and Energy hiking petrol prices by around 60-65 cents per litre on Wednesday (3 April). Diesel prices were flat with a marginal increase/decrease, depending on coastal or inland pricing.

Closing up the first week in April and looking ahead to potential price changes in May, petrol prices are again showing an under-recovery in prices of around 45 cents per litre, kicking off the month on the back foot for motorists.

Like early April, diesel prices are currently showing an over-recovery of close to 50 cents per litre, lining up another cut in May.

However, given the early days with a full month ahead, market conditions can still change significantly, and the final price changes may be wildly different.

Positive signs are already emerging for recoveries thanks to the rand, which has appreciated to its strongest level since the second week of March.

According to Nedbank analysis, the local unit has been boosted by the favourable gold price and some positive news on the logistics front.

The Absa PMI suggests an easing of rail and port inefficiencies, albeit from a very low base, while reports indicate that a new R3.4 billion terminal has been completed at the Durban port.

The rand is trading around R18.65/$ on Friday (5 April), up from R18.94 at the start of the week.

Given that the rand/dollar exchange rate is contributing to a small under-recovery (just 2 cents per litre), a strengthening local currency would swing that into a small over-recovery if maintained at current levels.

However, the biggest contributor to under-recoveries for petrol (and an over-recovery for diesel) is the movement in international fuel prices, driven by global oil prices.

This particular indicator is showing more strain for motorists, with Nedbank noting that oil prices are on the rise amid further tensions in the Middle East.

More specifically, the Brent crude oil price is trading above $90 a barrel on Friday, rising by 5.6% this week.

“The OPEC (oil-producing countries) ministerial meeting confirmed the production cuts agreed in June 2023, and it is expected to maintain them when it is next convened on 1 June,” the bank said.

According to Bloomberg analysis, global benchmark Brent pierced $91 a barrel, as geopolitical risks come into play in the market.

“The focus has shifted to a dramatic repricing of geopolitical risk, after Israel increased preparations for a potential retaliation by Tehran to a strike on an Iranian diplomatic compound in Syria. That has stoked fears of a wider regional conflict.

Some analysts have raised their short-term rally projections to around $100 a barrel, while longer-term (three-month future) pricing has forecast $95 a barrel.

If these projections prove true, the oil price pressure on local pricing will continue beyond May and into the rest of the year.

Read: Big interest rate shift on the cards for South Africa

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