Great news for petrol prices in South Africa next month
Data from the Central Energy Fund (CEF) for the second week of September shows that market conditions have remained fairly stable, making a huge cut in petrol and diesel prices for October more likely.
According to the data, the significant over-recovery in prices at the start of the month is still going strong, exceeding R1 per litre for both petrol and diesel.
Petrol shows an over-recovery of between R1.22 and R1.30 per litre, while diesel’s is between R1.11 and R1.13 per litre.
These are the indicators:
- Petrol 93: over-recovery of 122 cents per litre
- Petrol 95: over-recovery of 130 cents per litre
- Diesel 0.05% (wholesale): over-recovery of 111 cents per litre
- Diesel 0.005% (wholesale): over-recovery of 113 cents per litre
- Illuminating paraffin: over-recovery of 105 cents per litre
The CEF does not present daily snapshot data for LP Gas.
Week-on-week, recoveries are down by only 9 cents per litre, with only minor fluctuations in the market.
The rand has had a more volatile time, moving from below R17.70 to the dollar to almost hitting R18.00/$ over the course of the week—but it has moved back to the R17.70 levels, currently trading at R17.75.
Oil, meanwhile, has remained in a weaker position, trading even lower than it was last week.
The commodity is currently trading at $72.50 a barrel, having fallen to around $73 at the start of September from just under $80 in August.
While oil is much weaker relative to August, the past week actually saw the price gain. Brent crude rose above $72 a barrel, pushing its weekly climb to almost 2%.
Investec chief economist Annabel Bishop said this week that the international oil price has dropped mainly on weak demand, as the rise in interest rates in many countries over the past few years weakened global demand, particularly industrial production, and has also weakened demand expectations for oil.
“September saw a 92c/litre drop in the petrol price, and similar to July’s 99c/litre drop, this will aid inflation lower this month when the data is released for the CPI in October,” she said.
According to Bloomberg analysis, this is because of storm Francine, which disrupted crude production, and a risk-on tone sweeping across wider markets ahead of expected US Federal Reserve interest-rate cuts this month.
Despite the gain, crude remains 16% lower this quarter on concerns about a dimming demand outlook in top importer China.
The International Energy Agency said that global consumption growth in the first half was the lowest since the pandemic as China’s economy cooled, according to its monthly report. Against that backdrop, producer cartel OPEC+ has opted to defer a plan to relax supply curbs.
Chinese demand contracted in July for a fourth straight month, and fuel use elsewhere is “tepid at best,” the IEA report said.
The outlook appears even weaker for next year, when there will be a surplus each quarter even if OPEC+ abandoned plans to gradually start restoring halted supplies, it added.
Meanwhile, the US Fed is widely expected to start cutting US interest rates at its meeting next week after inflation cooled and signs of a labour market slowdown emerged, and there’s speculation that policymakers may opt for a 50-basis-point reduction.
Lower borrowing costs may support growth and wider energy demand.
Ironically, the impending rate cuts—and similar expectations for the South African Reserve Bank (SARB) to cut local rates this month as well—have driven some rand weakness.
While the rand is still in a fundamentally stronger position thanks to the shift in sentiment around the Government of National Unity and promised reforms, cutting rates at the same time as the US has implications for the rate differential, which weakens the rand.
Bishop noted that poor, albeit expected, US CPI core inflation print this week aided the rand in weakening from R17.68/USD dollar, to R17.98/USD. Markets are firming up expectations of a 25bp and not 50bp September US interest rate cut, she added.
Citadel Global director Bianca Botes noted this week that data coming from the US (feeding sentiment around its rate cuts) has had little impact on the rand, however.
She said that the rand has been “stuck in a 30c range for over two weeks”—though uncertainty in the market has caused it to trade on the weaker end of this range this week.
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