Another positive turn for petrol prices in August
Data from the Central Energy Fund for the end of week three in July shows that all fuel grades are now in line for a small cut in August.
Last week, only petrol 93 and 05 and 0.05% sulphur content diesel were lined up for cuts – but a weaker oil price and a relatively stable rand have now added 0.005% diesel to the list of possible cuts.
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.
- Petrol 93: decrease of 5 cents per litre
- Petrol 95: decrease of 9 cents per litre
- Diesel 0.05% (wholesale): decrease of 16 cents per litre
- Diesel 0.005% (wholesale): decrease of 3 cents per litre
- Illuminating paraffin: decrease of 10 cents per litre
It must be noted, however, that the expected cuts are on a knife’s edge and very close to a flat rate. Any major weakening of the rand or a sharp spike in oil prices could send the figures in the opposite direction.
But as July draws to a close, the likelihood of this happening becomes slimmer.
A big positive for pricing is that the rand had strengthened to R18.26 to the dollar on Friday (26 July), a better position than the R18.34 when the snapshot was taken. In addition, oil prices have also cooled to just over $82 a barrel – a better position than the $85 a barrel range seen throughout most of the month.
According to Bloomberg analysis, oil prices have been trading within a narrow range this month, with the $82 a barrel mark leaving prices little changed for the week.
The relative stability comes as traders assess lower US stockpiles and weakness in Chinese demand.
“There are concerns about energy consumption in China, the world’s largest oil importer. A slowdown in growth, a lack of major stimulus initiatives, and higher electric-vehicle usage are crimping demand expectations,” the group said.
Crude remains modestly higher year-to-date, helped by supply cutbacks from oil-producing nations (OPEC+) and expectations for lower US interest rates.
The rate cut expectations and Chinese slowdown are also impacting the rand.
The South African rand traded around R18.40/$ on Thursday, as commodity-linked currencies came under pressure amid Chinese demand woes and broader global risk-off sentiment, according to Citadel Global director Bianca Botes.
While strengthening again on Friday, the rand’s position is overall weaker when compared to the sub-R18 levels seen a couple of weeks ago.
Investec chief economist Annabel Bishop noted that this is because of the expected rate-cut cycle approaching.
“The rand has weakened to R18.53/USD since the MPC meeting, from R18.04/USD before the meeting, as markets have now fully factored in an interest rate cut for September,” she said.
“Interest rate cuts in South Africa reduce the return on rand deposits, and the comparative return on hard currency similar assets is impacted.
“That is, the interest rate cut cycle starting in South Africa and the US at the same time would negatively impact the rand,” she said.
Markets are currently pricing in a shift to rate cuts starting in September for the US.
Locally, rate cut expectations have also shifted to a September cut, with economists expecting a downward move of 25 basis points—and likely another to follow in November.
South Africans will have to wait one more week for the official changes as the first Wednesday of August falls on 7 August.
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