Big petrol price cut coming in June

 ·21 May 2024

Data for the third week in May shows that South African motorists are in store for a sizeable cut to prices – with petrol and diesel in line for reductions.

According to week three data from the Central Energy Fund (CEF), petrol and diesel prices are showing an over-recovery of between 83 and 90 cents per litre.

Petrol prices could be coming down by 84-85 cents per litre, and diesel prices could be cut by 86-90 cents per litre.

This is about 20 cents per litre more than mid-month estimates, pointing to a much more positive direction for motorists.

These are the expected changes:

  • Petrol 93: decrease of 85 cents per litre
  • Petrol 95: decrease of 84 cents per litre
  • Diesel 0.05% (wholesale): decrease of 90 cents per litre
  • Diesel 0.005% (wholesale): decrease of 86 cents per litre
  • Illuminating paraffin: decrease of 77 cents per litre

This is thanks to a much stronger rand and lower global oil prices relative to April, both of which contributed to the over-recovery.

The rand had a strong week last week which continued into this week. While there was some consolidation on Monday (20 May), the unit managed to retain its strength under R18.20 to the dollar, sticking around those levels on Tuesday.

According to Investec chief economist Annabel Bishop, a lot of this is owed to the unit shaking of pre-election jitters as markets start feeling more confident of no political shocks in the 2024 election results.

Oil prices, meanwhile, fell as metrics showed signs of a weaker market despite an uptick in geopolitical tensions before an OPEC+ meeting on supply.

Oil is about 8% higher this year due to the OPEC+ cuts, but Brent crude has eased since mid-April, Bloomberg analytics noted.

“Traders are looking to a meeting of the cartel in early June that will set the group’s supply policy for the second half, with market watchers largely expecting a rollover of curbs,” it said.

Good news for inflation

According to Old Mutual Group Chief Economist, Johann Els, lower petrol prices are expected to have a cooling effect on inflation, with the group expecting CPI figures for April this week to settle at around 5.3% (the same as March).

Els said that one of the primary drivers behind the recent higher-for-longer inflationary trend is the series of petrol price hikes witnessed throughout the year.

Petrol prices in South Africa have increased by R3.00 per litre since the start of the year, adding pressure to households and keeping inflation stubbornly outside of the 4.5% target set by the South African Reserve Bank (SARB).

The country started the year with a petrol price cut in January, but then experienced four consecutive hikes from February through to May.

If the price relief for June follows through—which is all but guaranteed this late in the month—this will break the trend, and the total 2024 hike should reduce to around R2.15 per litre.

According to Els, the 2024 increases have exerted considerable pressure on consumer spending patterns. Given that transportation costs represent a significant portion of household budgets, any fluctuations in the petrol price will inevitably have ripple effects across various economic sectors.

“(The 5.3% inflation) figure, while consistent with recent trends, poses challenges as it exceeds the South African Reserve Bank’s target, potentially dampening economic sentiment”.

He further highlighted the complex relationship between petrol prices and broader inflationary trends, emphasising their impact on consumer spending patterns and the economy at large.

Notably, the base effect, coupled with petrol price hikes, contributes to the complexity of the inflationary landscape, necessitating a nuanced approach to monetary policy.

This has a ripple effect on food inflation, a critical component of the CPI basket, he said.

Read: R3 per litre petrol pain for South Africa

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