Positive turn for petrol prices next month

Fuel prices in South Africa are holding onto over-recoveries, meaning that a small price cut for petrol—and now diesel as well—is still possible.

Mid-month data from the Central Energy Fund (CEF) pointed to a mixed result for fuel prices, with petrol lining up for a small cut and diesel going the opposite direction.

However, a turn in fortunes during week three of the month has now put diesel and illuminating paraffin on the over-recovery side as well, with only 0.005% sulphur diesel showing an under-recovery.

• Petrol 93: decrease of 3 cents per litre
• Petrol 95: decrease of 7 cents per litre
• Diesel 0.05% (wholesale): decrease of 7 cents per litre
• Diesel 0.005% (wholesale): increase of 8 cents per litre
• Illuminating paraffin: decrease of 1 cent per litre

While a far stretch from the sizeable petrol price cuts seen over the past two months, motorists will find some relief in not having to pay more, provided current market conditions persist to the end of the month.

Positively, the rand, which is already under pressure amid global tensions, is likely to strengthen as these tensions ease and risk filters out of the market.

Oile prices, meanwhile, have been relatively stable, edging lower this week on concerns that Chinese growth may slow and jeopardize consumption.

Meanwhile oil-producing nations look to be still on track to loosen supply curbs later this year, Bloomberg reports.

Markets are still keeping an eye on movements in the United States, however, with the political tension between the US and China potentially escalating.

The rand weakened this week after markets digested an attempted assassination on former US president and Republican candidate Donald Trump last weekend. The incident appeared to have triggered a rally in support for Trump and markets started betting on him winning the presidency in November.

While this did not materialise in polling, Trump’s stance on China, which is well-known to be antagonistic, has sparked worries over looming trade wars.

Current US President Joe Biden has also indicated he would consider severe trade restrictions to prevent China from accessing high-end chipmaking tools, putting pressure on markets. Risk-off trends put particular pressure on emerging markets, including South Africa.

With oil, things are more muted.

Bloomberg reported that crude oil is still higher this year, aided by OPEC+ supply restraint, a recent decline in US stockpiles, and expectations for lower interest rates from the US Federal Reserve.

“In the near term, traders are also tracking wildfires in Canada that have threatened some supply and supported prompt pricing.”

Despite this, markets have been “relatively rangebound”, with Chinese demand concerns capping the market and suggesting a softer demand picture.

Combined, the market outlook paints a relatively stable picture for local fuel prices.

Fuel price review

A small cut in petrol prices will support declines in inflation and the push from government to contain the rising cost of living.

President Cyril Ramaphosa announced on Thursday (18 July) that the Government of National Unity will be specifically targeting rising costs in country and the applied prices (taxes) on petrol in particular.

He said the government would launch a “comprehensive review” of the petrol price formula.

“This we did for a while, as prices of fuel kept rising, we found a way we could stabilise the price. We will seek to find ways to address this challenge,” he said.

Several interventions have been raised in the past to address petrol prices in South Africa. Back in 2022 the government proposed three changes that could impact pricing, including the possible introduction of a price cap and reviewing the Regulatory Accounting System (RAS).

Treasury previously said that a review of the RAS could result in a significant decrease of R1.03/litre.

Read: Petrol price changes coming for South Africa: Ramaphosa