Petrol price pain expected next week
Month-end data from the Central Energy Fund (CEF) confirms a small under-recovery in fuel prices, which means a petrol and diesel price hike is all but guaranteed for November.
Reflecting what has been a month of higher oil prices and a weaker rand, October’s daily recoveries ended in negative territory, averaging around -20 cents per litre across the board.
These are how the recoveries ended the month:
- Petrol 93: increase of 14 cents per litre
- Petrol 95: increase of 26 cents per litre
- Diesel 0.05% (wholesale): increase of 21 cents per litre
- Diesel 0.005% (wholesale): increase of 20 cents per litre
- Illuminating paraffin: increase of 21 cents per litre
While the under-recoveries for petrol and diesel eased by a few cents thanks to the oil price retreat this week, it has come too late in the month to impact recoveries.
However, this does mean that prices for December could be more positive if the market continues to stabilise and the rand does not weaken further.
The rand has been on the back foot in October due to wider market volatility.
Uncertainty ahead of the US election has kept markets in a risk-off mindset, impacting emerging markets, while the US Fed’s messaging on interest rates has also kept pressure on.
After a 50 basis point cut to rates in September, the US Fed has indicated that the rate cut path will be slower, with two more 25 basis point cuts expected by the end of the year.
On the local front, Wednesday’s budget served as a start reminder to markets that South Africa’s economic reality is not quite aligned with the swell in positive sentiment around the Government of National Unity (GNU) established after the May election.
The budget reflected a country in a tight spot, with revenue collections falling short and little room to move and pay for all the demands on finances. Meanwhile, debts remain a sticking point, needing much higher economic growth to narrow the gap.
Despite the rand weakening to between R17.60 and R17.80—averaging R17.56 this past quarter—it is still contributing to a meaningful over-recovery in fuel prices of around 10 cents.
The main driver of the likely fuel price hikes is oil prices.
Oil prices charged higher at the start of October due to escalating fighting and war in the Middle East, with Iran striking Israel at the start of the month. Israel vowed retaliation, which unsettled markets as expectations were set for oil markets in the region to be hit.
However, when Israel’s promised retaliation was delivered at the end of the month, it was more restrained than anticipated, and oil targets were spared.
According to economists at Nedbank, oil markets remain risk-driven.
“Oil prices declined by 3.6% compared to the previous week due to supply concerns after the Energy Information Administration reported an unexpected decline of 0.5 billion barrels in US inventories,” it said.
“The ongoing tensions in the Middle East remain an upside risk, with reports of Iran planning to launch an attack on Israel in the coming days pushing prices over $74/barrel.”
The Department of Petroleum and Mineral Resources will announce the official changes to fuel prices in the coming days, before they take effect on Wednesday, 6 November.
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