Good news for petrol prices in South Africa next week

Month-end data from the Central Energy Fund shows that fuel prices should be coming down across the board when official changes are announced for Wednesday, 7 August.

The recovery data for the end of July shows that petrol prices should be coming down by between 7 and 11 cents per litre, while wholesale diesel prices are set to be cut by between 9 and 22 cents per litre.

The expected declines are owing to a relatively stronger rand versus the dollar when compared to June, and flat global oil prices, which have come down during the course of July.

The month-end changes are as follows:

• Petrol 93: decrease of 7 cents per litre
• Petrol 95: decrease of 11 cents per litre
• Diesel 0.05% (wholesale): decrease of 22 cents per litre
• Diesel 0.005% (wholesale): decrease of 9 cents per litre
• Illuminating paraffin: decrease of 16 cents per litre

The month-end data is overall a significant improvement from the start and middle of the month, when fuel price recoveries were mixed.

While the expected cuts aren’t as deep as seen in prior months, it should still bring some relief to motorists—particularly diesel users, who were looking at a small price hike during the month.

It will also prove to be more positive for the country overall, as lower fuel prices have a positive impact on inflation, which in turn should accelerate the South African Reserve Bank’s move to cut interest rates.

Inflation in June was marginally improved from May. July inflation will come under pressure from electricity price increases that were implemented at the start of the month, but the petrol price cut—delayed by one day due to the setting up of the new government—should counteract some of this.

With another cut lined up for August, the inflation path should continue toward the central point of the SARB’s target range (4.5%), with economists anticipating rate cuts starting in September.

Rand and oil

Despite the rand’s losses against the US dollar after the 2024 national election and the successful establishment of the Government of National Unity (GNU), it has managed to settle in an overall stronger position this month compared to the R19/$ highs seen before the election.

A dollar rally on Monday (29 July) saw the rand push over R18.50 against the greenback, but it has since settled in the R18.35 region. Compared to June, the rand is trading in an overall stronger position, accounting for a 14 to 15 cents per litre over-recovery in fuel pricing.

According to Investec chief economist Annabel Bishop, the rand is under pressure due to the expected rate-cutting cycle in South Africa starting at the same time as the US cycle. Typically, a delay in cutting vs the US gives a better rate differential, which is positive for the rand. But cutting at the same time—as is expected—means traders will lose out on this.

Despite that technicality, Bishop said the overall outlook for the rand is positive, with markets showing confidence in the GNU’s centrist policy stance and the reforms and improvements in South Africa’s fundamentals—like the continued suspension of load shedding.

On the oil price, Brent crude is up overall this year so far, but has continued to trade within a tight range in recent months.

Prices are currently below $80 a barrel, which is a significant improvement from the $85+ levels seen at the start of the month. However, the average price is flat month-on-month, leading to a mix of recoveries.

For petrol and 0.005% diesel, oil (and its effect on international petroleum product prices) is leaning into a 3 to 7 cents per litre under-recovery. However, for 0.05% diesel, it’s showing an over-recovery of 7 cents per litre.

According to Bloomberg analysis of the global markets, the downward shift in oil prices this week is based on expected lower demand from China.

“Banks including Citigroup Inc. have downgraded their growth forecasts for Asia’s biggest economy, while export prices of US oil heading to the region are also weakening. China’s second-half imports are also seen as muted,” the group said.

The expected lower demand from China is keeping prices under pressure – but the curbs in supply by OPEC+ nations, as well as ongoing geopolitical tensions and conflicts in the Middle East and Russia, are applying pressure in the opposite direction.

Motorists in South Africa will still have a week to wait for changes to fuel prices to kick in.

The Department of Petroleum and Mineral Resources is expected to announce the official changes sometime before they are to come into effect on Wednesday, 7 August.

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