Big trouble for petrol prices in December
Early indications are that petrol and diesel prices are once again under pressure for December, with November starting out with an under-recovery in pricing.
However, this is an early indicator, with the weeks ahead still giving ample opportunity for the picture to change by month-end.
According to early data from the Central Energy Fund (CEF), petrol prices are starting the month with an under-recovery of between 7 and 16 cents per litre, while diesel is much worse off with an under-recovery of around 58 cents per litre.
This is likely a reflection of the strong start to October’s trades, where the month started off with a strong over-recovery and ultimately ended with a 20 cents per litre hike by November.
For December’s price changes, November is starting off weaker but could normalise as the month progresses.
- Petrol 93: increase of 7 cents per litre
- Petrol 95: increase of 16 cents per litre
- Diesel 0.05% (wholesale): increase of 59 cents per litre
- Diesel 0.005% (wholesale): increase of 57 cents per litre
- Illuminating paraffin: increase of 59 cents per litre
As always, the change in fuel prices will come down to whether the rand can strengthen and oil prices come down. Unfortunately for South African motorists, both these metrics are expected to be volatile in the coming weeks.
On the rand front, markets are currently in volatile territory as the US election comes to a close and results are counted.
Former US president Donald Trump appears to be set to return to the White House as the victor, which will be seen as a negative for the rand in the near term, and possible over the long term, depending on how the Republican candidate’s economic policies impact trade relations and global market at large.
The under-recovery in local fuel prices are already being negatively impacted by the rand/dollar exchange by around 2 cents per litre at a price of R17.48/$. On Wednesday, as markets process a Trump win, the rand weakened significantly to R17.80/$.
If this weakness carries forward the rest of the month, the negative impact on fuel pricing could escalate.
On the oil front, global oil prices have been fairly range-bound under $75 a barrel for the past few weeks—however, at these levels, this still account for the bulk of the under-recoveries in local prices (5 cents to 57 cents per litre).
As with currency markets, the impact of the US election on oil prices will take time to filter through, with analysts pointing to “cautious trading” around the vote.
However, support for prices have come from the decision by oil-producing nations (OPEC+) to delay a production hike in December due to weak demand.
Weaker demand is emerging from the Chinese economy, where economic growth has stumbled. The Chinese government is now looking for further stimulus to get the engine going again, with plans expected to be announced after this coming weekend.
Meanwhile, OPEC’s oil output rebounded in October, largely due to Libya resuming production, and Iran is planning to increase its output by 250,000 barrels per day, said Joseph Dahrieh, Managing Principal at Tickmill.
“While these developments could lead to more supply in the market, potential disruptions from a tropical storm in the Gulf of Mexico might reduce US oil production by about 4 million barrels, providing a bullish counterbalance.
“At this time, the market seems to be in a waiting game, focusing on upcoming data releases and events that could impact global crude prices.”
This uncertainty may lead to continued volatility, reinforcing a bearish outlook in the short term, he said, but also leaving the door open for bullish scenarios if geopolitical or weather-related disruptions arise.
A clearer indication of the direction and trend in fuel price recoveries will be seen in the middle of the month.
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