Even better news for petrol prices next week
A stronger rand and stable oil prices in the last week of August have boosted fuel price recoveries even further, lining up South African motorists for an even bigger cut at the pumps next week.
The latest data from the Central Energy Fund (CEF) for the final week of August shows that both petrol and diesel recoveries have improved.
Petrol prices are showing an over-recovery of between 84 and 91 cents per litre, while diesel’s over-recovery ranges between 74 cents and R1.00 per litre.
This is an improvement of around 25 cents per litre from the mid-month expectations.
The Department of Petroleum and Mineral Resources is expected to announce the official fuel price changes before they come into effect on Wednesday, 4 September.
These are the expected changes:
- Petrol 93: decrease of 84 cents per litre
- Petrol 95: decrease of 91 cents per litre
- Diesel 0.05% (wholesale): decrease of 74 cents per litre
- Diesel 0.005% (wholesale): decrease of 100 cents per litre
- Illuminating paraffin: decrease of 99 cents per litre
The over-recovery at the end of the month has been driven by a stronger rand to the dollar compared to the same time last month and more stable global oil prices, which have stayed under $80 a barrel.
The expected cut will also put year-to-date petrol 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 ~88 cents per litre cut expected for September, the total price reduction since June will total R3.36, giving South African motorists a small but positive swing in prices of around 36 cents per litre since the start of the year.
This spells good news for inflation in South Africa. The July petrol price cuts already showed lower CPI figures for that month, and August’s cut is expected to reveal the same.
Another sizeable cut in September will play into the continued easing of inflation into the fourth quarter of the year.
Rand/Dollar
The real turnaround in August was in the rand’s performance versus the US dollar.
The month started with the rand contributing to an under-recovery in prices as the local unit tanked alongside other emerging market currencies during a mild market panic in early August.
Lower-than-expected job numbers in the US created anxieties over a potential recession, which caused investors to pull out of riskier markets, impacting currencies. However, calm eventually returned, putting the rand back in good stead.
The rand has been benefitting from a boost in sentiment around the Government of National Unity (GNU) and the potential for continued economic reform in the country.
Indications of a likely interest rate cut in the United States in August have also supported the rand, although South Africa’s own move towards cutting rates has slightly undermined this.
This is because local rate cuts would prevent a widening in the interest rate differential between South Africa and the United States.
Regardless, the rand has strengthened from the R18.60 levels seen during the early-August panic to around R17.75 at month-end, contributing about 9 cents per litre to an over-recovery in fuel prices.
Oil
This month, opposing forces have kept global oil prices in check.
On the supply side, prices have come under pressure due to worries over political risk in the Middle East and a threat to supply from Libya, as well as other geopolitical tensions and moves from oil-producing nations.
On the demand side, however, this has been balanced out by dour outlooks on China’s economy—the biggest importer of oil—and lower diesel demand in Europe as countries switch to electric vehicles.
According to Bloomberg analysts, the market is expected to remain range-bound and balanced as these opposing forces continue to impact the market heading into September.
The oil price is lower than in July, contributing to an overrecovery of between 65 and 90 cents per litre in local fuel pricing.
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