Big turn for petrol price cuts in July

 ·21 Jun 2024

The latest data from the Central Energy Fund (CEF) shows that fuel price recoveries have pulled back by around 50 cents per litre since the start of the month—but motorists are still lined up for a sizeable cut in July.

At the end of the third week in June, fuel price recoveries are sitting at between R1.04 and R1.10 per litre for petrol and a smaller 34 to 40 cents per litre for diesel.

This is down from the over R1.50 per litre cut that was on the cards at the start of the month—and despite the rand’s surge this past week to trade under R18/$.

  • Petrol 93: decrease of R1.10 per litre
  • Petrol 95: decrease of R1.04 per litre
  • Diesel 0.05% (wholesale): decrease of 36 cents per litre
  • Diesel 0.005% (wholesale): decrease of 31 cents per litre
  • Illuminating paraffin: decrease of 28 cents per litre

While the rand has been stronger this week thanks to markets putting faith in the new Government of National Unity—which many are banking on to bring stability and reform in government—the currency is, on average, still trading higher than in May (~R18.60 vs ~R18.45, respectively).

This means that the exchange rate is still contributing to a small (7 cents per litre) under-recovery in prices.

If the current exchange rate is sustained until the end of the month, the average for June will track lower and likely lead to an over-recovery of a few cents per litre.

The main driver behind the fluctuations in fuel price recoveries is the global oil price, which has trended higher since the start of the month.

On Friday (21 June), Brent crude was trading at close to $86 a barrel – much higher than the month’s start at under $80 a barrel.

The tone on oil has reversed in recent weeks, with this week presenting the first back-to-back increase in prices since April.

Markets shifted as stockpile data came in lower than forecasts, and oil-producing nations (OPEC+) indicated that a plan to bring some barrels back to the market was conditional, pointing to a possible squeeze.

Oil consumption in various industries, particularly airlines and freight, has also ticked higher.

According to Bloomberg analysis, however, oil futures are likely overbought and “readings indicate a pullback may be imminent”.

While the petrol price cut expected for July is now smaller than projections at the start of the month, the coming cut is still great news for inflation.

According to Stats SA, inflation levels recorded in May were flat at 5.2%. One key reason for the lack of movement in CPI for the month was the relatively small hike in fuel prices (37 cents per litre) which kept consumers under pressure.

The good news is that the sizeable cut to fuel prices in June and the anticipated cut in July will greatly assist in bringing inflation down further and push it towards the 4.5% rate the Reserve Bank wants to see before cutting interest rates.

Inflation is expected to average around 5.0% for 2024 and only hit the 4.5% rate (on average) by Q2 2025, according to the Reserve Bank. But as long as a sustained decline is seen, interest rates can be cut.

As it stands, the start of the interest rate cutting cycle is anticipated to happen at the September Monetary Policy Committee meeting, with economists expecting a small 25 basis point cut.

The more bearish analysts believe this could be delayed to November, but the more bullish believe there will be two 25bp cuts in September and November—and more to follow in early 2025.

Read: Interest rate relief for South Africa is coming

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