Bad start for petrol prices in January

After two months of petrol price hikes, South African motorists may be in store for a tough start to the new year.

Early data from the Central Energy Fund (CEF) shows that fuel prices are starting December with under-recoveries in price, pointing to possible price hikes come the new year.

Petrol is showing an under-recovery of around 8 cents per litre, while diesel prices are starting the month with an under-recovery around 20 cents per litre.

These are the early projections:

• Petrol 93: increase of 8 cents per litre
• Petrol 95: flat at 0 cents per litre
• Diesel 0.05% (wholesale): increase of 17 cents per litre
• Diesel 0.005% (wholesale): increase of 21 cents per litre
• Illuminating paraffin: increase of 7 cents per litre

December saw fuel prices increase across the board: by 17 cents per litre for petrol and about 55 cents per litre for diesel.

The latest hikes have been driven by a weaker rand versus the dollar as well as volatility in the global oil markets.

According to Bloomberg analysis of the market, oil has been trading in a narrow range between $70 and $75 a barrel in recent months. However this is down significantly from the $90+ highest seen earlier in the year.

This week, oil prices steadied after OPEC+’s decision to push back the revival of shuttered production by another three months failed to lift sentiment. The glut is expected to carry through to next year, Bloomberg said, with projections in pricing expected to go as low as $66 a barrel.

“Crude has been confined to a tight range since mid-October, with bullishness from geopolitical developments in the Middle East and Ukraine countered by expectations for a glut in 2025 due to higher output from the Americas and lacklustre Chinese demand,” it said.

Weak global market balances mean there is little scope for the OPEC+ cartel to restore the output it’s been withholding since 2022.

The lower move in oil prices is contributing to an over-recovery for petrol, but still holds a small under-recovery for diesel.

The culprit dragging on recoveries, then, is the weaker rand.

The rand is currently trading just over R18.00 to the dollar—a position it has been in since early November when Donald Trump won the US presidential election. Prior to this, the rand was settled well under R17.50 to the dollar and even eyed a move below R17.00 at one stage.

Understanding the rand’s weakness is understanding markets in a global context. Markets view a Trump presidency as being decidedly nationalist and ‘America-first’, with the threat of trade wars and other restrictions a negative for emerging markets, particularly China.

South Africa’s ties to emerging markets and China means it suffered from the fallout as well.

However, other trade relations between the US and South Africa—such as AGOA—are also in the balance, keeping pressure on the rand.

Most recently, Trump stated a strong intention to punish BRICS nations if they continued to work towards de-dollarisaton or launching their own currency, which again caused a stir. The latter suggestion (a BRICS currency) has already been dismissed, but the former has been on the BRICS agenda for some time.

The rand’s weakness is the main negative contributor to petrol price recoveries, dragging them by around 10 cents per litre.

One silver lining to the early projections is that the market can change before the end of the month.

As has been the case in previous months, the projections can start one way, and flip by the time official price changes are announced.

However, starting with an under-recovery means starting out on the back foot, requiring a positive turn in conditions (ie, a stronger rand and lower oil prices).

A better indication of the direction of prices can be gleaned around the middle of the month.

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