Bad news for petrol prices next week

South African motorists should brace for a petrol price hike next week, with recoveries at the end of the third week of October not showing any improvement.

According to the latest data from the Central Energy Fund (CEF), fuel price recoveries for November have continued to deteriorate, with motorists now looking at a petrol and diesel price hike of around 20 cents per litre.

Petrol prices are showing a larger under-recovery, ranging between 18 and 30 cents per litre, while diesel under-recoveries are sitting at between 22 and 23 cents per litre.

This is a worse position than the mid-month estimate, and a complete reversal of the over-recovery (expected cut) at the start of the month.

These are the expected changes:

• Petrol 93: increase of 18 cents per litre
• Petrol 95: increase of 30 cents per litre
• Diesel 0.05% (wholesale): increase of 23 cents per litre
• Diesel 0.005% (wholesale): increase of 22 cents per litre
• Illuminating paraffin: increase of 20 cents per litre

As has been the trend throughout October, the main driver of the under-recovery comes from the global oil price, which is trading much higher relative to September.

While the spot price of Brent crude has come down to around $73 a barrel since the peaks in the middle of the month, prices, on average, are still higher than they were in September.

The rand/dollar exchange rate is still contributing to an over-recovery in prices, but the local unit has weakened to above R17.60 in recent weeks, undermining the strong start to the month where it flirted with a move below R17.00 to the dollar.

The rand has been on the back foot in October largely due to the stronger dollar and general risk aversion in the market as the United States heads towards its presidential election in November.

According to Investec chief economist Annabel Bishop, the close nature of the run-up to the US election—with differing polls often showing either Donald Trump or Kamala Harris in a very close lead—has increased market uncertainty, adding to the risk aversion.

Even entering the new week, the rand remains under pressure and on edge, according to Citadel Global’s Bianca Botes, as various risk events unfold.

“A stronger dollar and concerns over China’s economic stimulus and domestic political uncertainties are weighing on the local currency,” she said.

Overall, though, the rand is still firmer relative to September for now, thus providing an over-recovery in fuel pricing.

With less than a week to the end of the month, a fuel price hike is now likely—though how big or how small the hike will be is still in flux, but moving towards bigger.

Oil price pain

Oil prices are currently being pushed around by two major factors – the escalating conflict in the Middle East and China’s economic performance.

Tehran didn’t immediately vow to respond to the attack and Iran’s state media said that the country’s oil industry activities were working normally.

Iran launched a missile attack on Israel on 1 October which added a “war premium” to oil prices as the nation vowed retaliation.

Israeli jets struck military targets across Iran on Saturday, delivering on the vow to retaliate—though the attack was more restrained than expected.

According to Bloomberg analysis, prices eased more than 5% at the start of the week after the Israeli strikes against targets in Iran avoided the OPEC member’s crude facilities, raising the prospect for easing hostilities in the region.

The strike avoided oil, nuclear and civilian infrastructure, in line with a request from US President Joe Biden’s administration.

However, the situation remains volatile and predictable. Iran has not yet indicated that it will retaliate and reported normal oil operations.

Given the “underwhelming and proportionate” response from Israel, economists point instead to the other major factor impacting prices: the poor macroeconomic realities centred around China, which should push prices lower.

However, this late in the month, this is unlikely to reflect in time for November’s adjustments.

Read: The R12 per litre alternative to South Africa’s high petrol prices