Bad news for petrol prices in November

 ·10 Oct 2024

Petrol and diesel price cuts expected in November have been diminished by a weaker rand and rising global oil prices.

Motorists are still lined up for a cut, but it will be much smaller than projected at the start of the month.

The latest data from the Central Energy Fund (CEF) points to a small cut of between 15 and 23 cents per litre for petrol and around 10 cents per litre for diesel.

This is down significantly from the 80 cents per litre cuts projected just a week ago.

According to Investec chief economist Annabel Bishop, the rising oil price and the weakening local currency have been the main culprits in eroding the potential cut in November.

South Africans have become accustomed to price cuts in recent months, driven by a stronger rand and lower oil prices.

The government is also on a strong drive to reassess how it calculates the petrol and diesel prices to drive down fuel costs for consumers.

However, nothing has changed to date. This means that petrol and diesel prices are still driven by international oil prices and the rand’s strength against the US Dollar.

Bishop said the Brent crude price moved above US$80/bbl this week and above R1 400/bbl as the rand weakened as well.

International oil prices climbed due to worries that Iranian oil supplies and energy facilities would come under attack.

Bishop said that although Brent crude has seen higher prices this year, the recent price weakness has been quite rapid.

“The rapid rise in geopolitical risks has seen the oil price climb from around US$70/bbl at the end of September,” she said.

Comments from OPEC+ recently that Brent crude should be around US$80/bbl have also contributed to the price rise.

The rand remains a volatile currency, reaching R17.64/USD on the escalation in geopolitical tensions, from R17.03/USD at the end of September.

Bishop added that a cautious tone from the Federal Open Market Committee (FOMC) on the pace of US interest rate cuts also a factor.

The US dollar has seen some strength, and emerging market and commodities’ currencies weakness, with the rand falling into both categories.

“Markets had hoped for a quicker US rate cut cycle, but risk assets have recently weakened in disappointment,” she said.

The rand oil price has climbed by 7% for the first seven days of October compared to the same period in September.

Bishop warned that if oil prices continue to rise and the rand weakens November could see a petrol price hike instead of the anticipated cut.

Petrol price increases are bad for South Africa

Investec Chief Economist, Annabel Bishop

Bishop explained that higher petrol and diesel prices significantly affect the economy, including driving up inflation.

The recent rise in oil prices has raised concerns about inflation, adding to market expectations that the US rate cut cycle will not be sharp.

Higher inflation in the United States and lower rate cuts bolster the US dollar and weaken the rand.

Petrol price changes also directly affect South Africa’s CPI inflation outcomes in the month they occur.

Bishop explained that fuel prices are the fourth biggest driver of inflation in South Africa, and so have a notable impact.

The petrol price was cut by R1.14/litre in October and by 92c/litre in September, which will help keep CPI inflation lower in those months.

September has been expected to see inflation fall closer to 4.0% y/y, and October below 4.0% y/y, with suppressing base effects.

Both food and oil prices tend to have fairly direct impacts on CPI inflation. Oil prices have also seen support from OPEC+.

OPEC+ has also been focusing on compliance with production cuts, which has added to price support.

To date, Brent crude oil has seen an average price of US$81.7/bbl, which is near our forecast of around US$82/bbl, and similar next year.

All of these factors are bad news for South Africa’s economy and for consumers who want to see a continued decline in petrol and diesel prices.


Read: R6.40 per litre petrol price cut in South Africa – and lost taxes

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