Brace for higher petrol prices next week

 ·26 Apr 2024

South African motorists should brace for petrol price hikes next week, as the country closes out the week – and the month – with a sizeable under-recovery in prices.

The latest data from the Central Energy Fund (CEF) for the final week of April shows that petrol prices are sitting with the same 35 cents per litre under-recovery that has persisted for the last few days.

While global oil prices have pulled back slightly from the $90-plus price point due to tensions in the Middle East, a weaker rand as in effect reversed whatever positive impact that has had on the recoveries.

Petrol is still lined up for a 35cpl hike, but diesel is still sitting in the green with a 30-37cpl over-recovery, which should provide some relief to industry, including freight and farms.

The Department of Mineral Resources and Energy is expected to announce the official changes any time between now and next week Tuesday (30 April), with the prices kicking in from Wednesday, 1 May.

According to Bloomberg analysis, while oil prices pulled back below $90 a barrel from last week, they still headed for a weekly gain on signs of tightening supplies before the release of US inflation data.

Brent rose slightly to top $89 a barrel and is 2.3% higher for the week.

“Figures earlier this week showed US crude stockpiles falling, and key timespreads indicate tight supplies,” it said.

Even as the tensions around the Middle East have eased, overall crude prices have advanced this year on supply cuts implemented by OPEC+ and political risks in regions.

“Despite the nearby strength, there are concerns in other corners of the market. In Europe, diesel’s premium to crude is the smallest since June as that part of the barrel continues to exhibit softness.

“We’re going into the $90s for crude for a while,” said Aldo Spanjer, senior commodities strategist at BNP Paribas. “What people are struggling with is that a lot of the increase we have seen is actually the macro environment.”

The rand

The other major component of recoveries, the rand, has been having a neglible impact on fuel this month, with the volatility (ranging between R18.65 to R19.25 in recent weeks) keeping its contribution relatively flat.

That said, the rand has gone from contributing a 2 cents per litre cut in fuel prices to a 2 cents per litre hike, effectively working against motorists.

The rand’s recent weakness is more due to dollar strength, rather than any major local factors.

Markets have now cemented a “higher for longer” position on interest rate cuts in the world’s largest economy – expecting possibly only one cut this year at the end of the year.

This has rippled into other markets, including South Africa, where the rate cut narrative is quickly becoming a “hold all year”, with whispers of even a hike.

Despite this, the rand has still managed to see a small boost from local events.

After closing at R19.19 on Monday, the rand pulled back to under R19/$ after an initial $39 billion takeover bid for Anglo American Plc by BHP Billiton was rejected by the local miner’s board, said Nedbank.

This is because the rejection has raised expectations of a higher bid price that would boost foreign currency inflows into the local market.

At the same time, the US dollar weakened amid lower-than-expected Q1 economic growth, which raised fears of US stagflation. The rand is currently trading around R18.85 to the dollar.

Read: Interest rate hike warning for South Africa

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