Big petrol price cut hitting next week – with more to come
Economists and analysts say South Africans should look forward to a sizeable petrol price cut next week – with prospects looking good for the rest of the year as well.
According to month-end data from the Central Energy Fund (CEF), petrol prices are set to decrease by around R1.09 per litre in October, with diesel likely to come down by the same (R1.10 per litre).
The cuts would mark the fifth consecutive price drop since May and would be around R4.60 per litre lower than the same time last year.
This significant over-recovery is thanks to a stronger rand in September and lower global oil prices—both of which have worked in motorists’ favour and are set to continue doing so.
The Bureau for Economic Research (BER) noted on Friday (27 September) that the continued strength in the rand exchange rate and the further dip in the Brent crude oil price have been more positive for local inflation.
This has shown through most notably in lower fuel prices, “with another hefty decline expected next week”, it said.
Oil prices, in particular, have come down quite a bit, with the BER pointing to reports that Saudi Arabia is ready to abandon its unofficial price target of $100/bbl and wants to ramp up production to regain market share.
Brent crude traded near $72 a barrel and is about 3.5% lower this week.
“While OPEC+ production cuts have helped to keep prices elevated, this was countered by big increases in non-OPEC supply (the US) and lower demand from China,” the BER said.
This is also having a dampening effect on forward pricing for oil – but comes with the caveat that risk factors are still very much present in the market that could cause things to turn.
One of the key risks is geopolitical tensions in the Middle East.
“Following the ‘pager attacks’ earlier this month, Israel continues its bombing campaign on Lebanon. The strikes have resulted in a rising death toll and civilians fleeing the area,” the BER said.
“Following reports that Israel was preparing for a ground offensive in Lebanon, international calls for a ceasefire between Israel and Hizbollah intensified, with the hope that a (temporary) truce reached there could also aid discussions around Gaza.”
Another risk factor is China’s economy.
The Asian nation has underperformed expectations, dampening demand for oil. While China unveiled a slew of monetary and fiscal stimulus measures this week—aiding stocks as well as some commodities—the effectiveness of this remains uncertain, Bloomberg noted.
The rand, meanwhile, has gone from strength to strength, hitting as low as R17.11 this week, riding the positive sentiment around the Government of National Unity and the steeper than expected rate-cutting cycle in the US, which favours the rand.
Earlier this month, the US Fed cut rates by 50 basis points, which was followed by the South African Reserve Bank cutting local rates by 25 basis points.
This widened the US/ZAR rate differential (a positive for the rand) while also bringing some relief to South African households and boosting expected consumer spend.
While the rand is not forecast to hit its ‘fair value’ of R15 to the dollar any time soon, some economists believe it is possible in the long run, if economic reforms take hold and global sentiment remains positive.
Regardless, a big petro and diesel price cut for South Africa is all but cemented for October, with the Department of Petroleum and Mineral Resources expected to announce the official changes in the coming days.
The new prices will kick in on Wednesday, 2 October.
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