More petrol price joy coming in September
Data from the Central Energy Fund (CEF) for the third week of August points to a continued over-recovery in petrol and diesel prices in South Africa, lining motorists up for a fourth consecutive cut in September.
The CEF’s latest data shows a 73 to 78 cents per litre over-recovery for petrol and a 62 to 88 cents per litre over-recovery for diesel.
These are the expected changes:
- Petrol 93: decrease of 73 cents per litre
- Petrol 95: decrease of 78 cents per litre
- Diesel 0.05% (wholesale): decrease of 62 cents per litre
- Diesel 0.005% (wholesale): decrease of 88 cents per litre
- Illuminating paraffin: decrease of 88 cents per litre
Notably, the over-recovery in prices in August so far is driven by both a stronger rand and lower global oil prices—and the current trajectory is even more positive than at the middle of the month (around 10 cents per litre better).
Another positive for South Africans at large is that the expected cut will put pricing in positive territory.
Petrol prices shot up by R3.00 per litre in consecutive hikes from January to May 2024, causing a concomitant spike in inflation over the period.
However, with another ~75 cents per litre cut expected for September, the total price reduction since June will total R3.23, giving South African motorists a small but positive swing in prices of around 23 cents per litre since the start of the year.
The impact of lower fuel prices is already being seen on a national level, with headline inflation for July improving to 4.6%—a much better result than anticipated by the market.
Fuel prices dropped for a second straight month in July, with fuel inflation dropping from 4.6% in June to 3.6% in July.
Rand on a run
One of the biggest turns for the petrol price has been the rand, which has swung from contributing to an under-recovery (lowering a potential cut) to an over-recovery.
The over-recovery is still marginal at 3 cents per litre, but this is because the local currency has only just now strengthened back to its position seen in July, in the wake of positive sentiment around the Government of National Unity.
The rand crashed earlier in August on the back of a market panic over a possible recession in the United States. However, as markets calmed, the unit moved back towards its relatively stronger position seen in July.
On Wednesday, the rand was trading at R17.85 to the dollar—a far reach from the R18.60/$ levels seem amid the panic.
According to Investec chief economist Annabel Bishop, the rand is being aided by supportive data and a reversal of the risk-off wave. It is also being supported by likely interest rate cuts in the United States in September.
Overall, though, the rand is trading stronger on a more ‘permanent’ level as South African assets have won investors’ favour since the business-friendly GNU coalition took power two months ago, and the country’s economic data began improving.
But economists have warned that the rally has short legs, and that volatility will likely persists throughout the final quarter of the year as the South African Reserve Bank makes its own interest rate moves.
Oil prices
Contrary to the swinging rand, the global oil price has proven more balanced in August, despite its own market fluctuations.
The price has been range-bound for a few months, with August seeing prices stick below $80 a barrel (trading at around $78 a barrel on Wednesday).
Oil prices have been balanced by opposing forces: worries over supply due to geopolitical conflicts and oil-producing nations’ curbs—and worries over demand as the world’s biggest importer, China, stumbles economically.
According to Bloomberg analysis, crude has given up most of its gains this year as China’s lacklustre economy overshadowed OPEC+ supply cutbacks—which means lower prices globally and better news for motorists locally.
Old Mutual Wealth Investment Strategist Izak Odendaal noted this week, however, that oil hasn’t reacted dramatically to global conditions, adding that “commodity prices are cyclical and will recover at some point.”
For now, though, the balance and range-bound trade is serving to the benefit of drivers.
Loading ...
