Big turn for petrol prices in South Africa lined up for June

 ·8 May 2024

Motorists in South Africa could finally be in store for some relief at the pumps in June, with early data pointing to a cut for both petrol and diesel.

Data from the Central Energy Fund (CEF) for the first week in May—ending 7 May—points to an over-recovery in both the petrol and diesel prices.

Petrol prices are showing an over-recovery of 34 cents per litre, while diesel is showing a more sizeable over recovery of between 68 and 73 cents per litre.

This would present a significant turn in fortunes for petrol prices, which have gone up for four consecutive months in 2024.

Starting with a 76 cents per litre cut in January (Petrol 95), prices saw a combined increase of R3.00 per litre from February to May (a net increase of R2.24 since the start of the year). Diesel prices have fared a lot better, seeing a net increase of only 12 cents per litre this year.

As always, this data comes with the caveat that it is still early in the month, and market conditions can still swing before the Department of Mineral Resources and Energy makes the final announcement—but the data indicates that conditions are currently positive for motorists.

The positive signs come from a stronger rand, relative to most of April, and a lower global oil price, which has pulled below $83 a barrel.

The rand and oil prices are contributing to the over-recovery, meaning both would have to turn negative (the rand weakens, oil prices rise) to swing the over-recovery to an under-recovery and bring price hikes.

The good news is that oil prices have been on a downtrend since early April, posting losses in three of the past four weeks.

According to Bloomberg economists, indicators from timespreads to processing margins point to a weaker outlook.

“Brent and WTI’s prompt spreads have narrowed to multi-month lows, suggesting that conditions are becoming less tight. In addition, profit margins of making fuels like diesel have also declined,” they said,

The group added that the stronger dollar is also a headwind as the commodity becomes more expensive for many investors.

“The US currency headed for a third day of gains, according to a Bloomberg gauge, while oil’s breach below its 100-day moving average is also exacerbating the latest bout of price weakness,” it said.

The economists warned, however, that while there’s weakness amid rising stockpiles and fading geopolitical threats, there are ongoing supply-side risks which could still push prices higher.

These include factors like oil-producing nations (OPEC+) renewing curbs on Iranian and Venezuelan oil. Most traders expect that the curbs will be extended, possibly to the year-end, according to a Bloomberg survey. Ongoing tensions in the Middle East also remain a factor.

The rand, meanwhile, has tracked stronger in recent sessions.

According to Investec chief economist Annabel Bishop, the stronger rand follows hopes of an earlier US interest rate cut, boosted by the release of weaker-than-expected US jobs data and some US dollar weakness.

This boosted the rand to around R18.40 to the dollar on Friday (3 May). While the rand has weakened to around R18.50 this week, it remains well below the R19.00 to the dollar mark, thus still making a positive contribution to fuel recoveries of around 17 cents per litre.

Bishop noted that the rand remains volatile, with the strengthening streak predominantly hinging on US data. Election tensions ahead of the 29 May vote in South Africa are also a factor.

Read: South Africa has barely entered the race

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