Bad to worse for petrol prices in South Africa next month

 ·21 Oct 2024

Fuel price recoveries continue work against motorists in the lead-up to November, with data for the end of the third week of October pointing to growing under-recoveries.

Data from the Central Energy Fund (CEF) ending the third week of the month show that petrol and diesel prices are showing an under-recovery, with the numbers worse than at the middle of the month.

Petrol prices are worse off by around 10 cents per litre versus the mid-month estimates, while diesel under-recoveries have increased by around 5 cents per litre.

These are the expected changes:

  • Petrol 93: increase of 13 cents per litre
  • Petrol 95: increase of 15 cents per litre
  • Diesel 0.05% (wholesale): increase of 18 cents per litre
  • Diesel 0.005% (wholesale): increase of 17 cents per litre
  • Illuminating paraffin: increase of 12 cents per litre

The under-recoveries are being driven by higher global fuel prices, which have increased—relative to September—off the back heightened tensions in the Middle East and indications of a slower interest-rate cutting cycle in the United States.

The rand, which has been trading within a set range against the US dollar for much of the month, is still helping to counter the under-recovery, but it has not moved the dial much in terms of the amount.

Put another way, oil prices are leading to a 30 cents per litre under-recovery in prices, while the rand/dollar exchange is reversing this by between 13 and 25 cents per litre, depending on the grade.

Oil prices

According to Bloomberg analysis of the market, oil prices gained on Monday (21 October) after losing almost 8% last week.

Traders have been tracking supply risks from tensions in the Middle East, and China again moved to bolster its economy.

“On Saturday, a Hezbollah drone exploded next to Prime Minister Benjamin Netanyahu’s private home. The following day, Israel opened a fresh military assault on the group’s strongholds in Lebanon. Israel has already vowed to retaliate against Iran for a missile attack at the start of October,” it said.

Meanwhile, China—the world’s largest oil importer—cut its benchmark lending rates on Monday. The central bank lowered interest rates at the end of September as part of a series of measures to revive growth.

Oil markets have had a volatile month, and this volatility has been reflected in local fuel recoveries, which have completely reversed from a potential cut of around 80 cents per litre at the start of the month to the now-projected 15 cents per litre hike.

This volatility is expected to continue, with analysts keeping an eye on the Middle East as one of the bigger unknowns. In terms of supply data, the figures point to a possible surplus in 2025, but further escalations in the Middle East could significantly impact this.

Rand/dollar

The rand has been telling a different story.

While the unit came under pressure in October, the currency is still trading stronger than it was in September.

At one point, the rand was close to testing a break under R17 to the dollar, but this position was quickly reversed once global markets turned risk averse, preferring the dollar.

According to Citadel Global director Bianca Botes, the rand ended last week in a weaker position, hitting R17.74/$.

“The rand has been under pressure due to a combination of factors, including China’s weak stimulus-response and repositioning by investors who expect a more gradual Fed rate-cutting cycle. As a commodity-driven currency, the rand is particularly sensitive to fluctuations in global demand, especially from China, South Africa’s largest trading partner,” she said.

For this week, the unit performed better on Monday, trading at around R17.60—however, this is still a long way off from the R17.15 levels seen earlier in the month.

Generally, the rand has been trading stronger versus the dollar after the elections earlier this year, boosted by positive sentiment around the government of national unity (GNU) as well as the bigger-than-expected start to rate cuts in the US.

However, the currency has always been volatile, and uncertainty will linger until it finds a new direction – likely around the medium-term budget policy statement on 30 October.

Until then, the unit will take direction from sentiment in the market, Botes said.


Read: ‘Tipping point’ for Sasol petrol stations

Show comments
Subscribe to our daily newsletter