Positive turn for petrol prices in South Africa – but with a big catch

The first week of November has been a turbulent time for markets, sending South African fuel recoveries into negative territory – before pulling back slightly by the end of it.

The latest data from the Central Energy fund for the end of the first week (7 November), shows a very slight improvement on fuel price recoveries since the start of the month.

While a volatile rand ahead of and directly after the US presidential election kept the pressure up and pointing to under-recoveries of as much as 16 cents per litre, markets have turned, with even a positive indicator for 93 petrol, which is showing a small over-recovery.

Petrol 93 recoveries have swung from close to 10 cents per litre under recovery at the start of the month to an over-recovery of 5 cents per litre.

While these changes are very small, they show the positive impact swings in the global oil price and the strength of the rand can make.

The positive swing is also across all fuel types, though they remain in under-recovery territory.

These have shown a positive move of around 12 cents per litre.

The turn comes from a stronger rand, which has staged a solid recovery after losing ground against the dollar following the election of Donald Trump as US president.

After processing the immediate impact of the election outcome—which read as negative for emerging market economies—focus turned to the US Fed and its interest rate cut of 25 basis points.

The Fed has indicated that its cutting cycle is likely to be slower, softening the dollar and helping the rand.

Economists at Nedbank said that, given that some of Trump’s policies are expected to stoke inflation, market expectations of Fed cuts in 2025 have been revised lower, generally weighing on all emerging market currencies.

However, this is unlikely to dramatically affect South Africa’s rate cutting cycle—at least for now—though future rate hikes could be possible, depending on how things play out.

The other major factor when it comes to pricing, oil prices, have also been range-bound and muted.

The catch

As with all market data, the catch is that things can change very quickly, and markets are expected to remain volatile in the months, if not years, ahead.

According to Joseph Dahrieh, Managing Principal at Tickmill, the oil market is grappling with several factors.

This includes the diminishing threat posed by Hurricane Rafael—which caused significant disruptions in US crude oil production—and the coming Trump administration, which may implement policies such as tighter sanctions on Iran and Venezuela, which could limit their oil exports and tighten global supply.

There is also the question of weaker global demand from China, with data showing a 9% drop in the country’s crude imports for October—the sixth consecutive month of declines.

“(This has) raised alarms about slowing consumption. Moreover, a rise in US crude inventories added further downward pressure on prices, leaving the market in a state of uncertainty,” he said.

Economists at Nedbank noted that oil prices are ending the week marginally higher on indications that
OPEC will maintain its output restrictions into 2025.

In effect, the outlook remains balanced but can change on a whim.

The other big catch in the data is that diesel is still looking at a sizeable under-recovery of around 50 cents per litre, which will require a much more dramatic swing in global oil prices to counteract.

A clearer outlook for the month, and potential price changes for December, will be available when mid-month data is published next week.

Read: Rand stages a comeback