Petrol price pain coming for South Africa next week

 ·22 Apr 2024

Motorists in South Africa should brace for another petrol price hike at the pumps next week, despite positive moves for global oil prices.

According to the latest data from the Central Energy Fund (CEF) closing off the third week of April, petrol prices are expected to increase by about 35 cents per litre from next week (1 May), while diesel prices are in for a drop of around 30 cents per litre.

The under- and over-recoveries in fuel prices have experienced a volatile week in both the global oil and forex markets – with the former swinging wildly on uncertainties around tensions in the Middle East.

Oil prices have calmed significantly at the start of this week, as some of the premium from tensions in the Middle East continued to fade from the market.

Bloomberg analysts noted that an “uneasy calm” has descended over the market after prices whipsawed on Friday, with Iran downplaying Israel’s response to the Islamic Republic’s unprecedented drone and missile strike a week earlier.

On Monday, addressing the tensions, Tehran said Israel has received the “necessary response at this stage.”

While the tensions appear to be dissipating somewhat, the group noted that oil is still around 12% higher this year due to the geopolitical tensions and OPEC+’s supply cuts that have tightened the market.

Prices are still a ways off from the $75 a barrel start to the year (currently around $86 a barrel), contributing to significant under-recoveries for local petrol prices (although the opposite is the case for diesel).

The other component of recoveries in South Africa is the rand, which has almost moved into under-recovery territory.

The weaker rand, which is again above R19 to the dollar, is still contributing to positive recoveries for fuel prices, but this is only 1 cent per litre, meaning the sentiment around oil is going to be the deciding factor.

The rand traded weaker on Monday, currently at R19.09 to the dollar, having hit above R19.20 at the close of last week.

The local unit was trading lower as emerging market assets came under pressure on the back of heightened global risk aversion.

Petrol prices have climbed by a net R1.80 so far this year, with increases in February, March and April after starting the year off with a decent 76c per litre cut in January.

Another 35 cents per litre hike in May would take this up to R2.15, and push 93 petrol prices back above R25 a litre.

This also means that the inflationary pressure attributed to petrol price hikes is likely to continue.

Read: Petrol price double-blow for South Africa

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