Things just took a bad turn for petrol prices in January
The weakening of the rand versus the dollar this week has pushed fuel recoveries into the negative, pointing to petrol and diesel price hikes on the cards in the new year.
Following warnings earlier this month that markets were dancing on a knife’s edge either way, the rand weakening to over R18.20 versus the dollar this week has pushed prices into a small under-recovery.
Petrol prices are showing an under-recovery of 6 to 13 cents per litre, while diesel is showing an under-recovery of 1 to 4 cents per litre.
The only fuel to escape the decline is illuminating paraffin, which is still showing an over-recovery of 12 cents.
These are the current projections:
- Petrol 93: increase of 13 cents per litre
- Petrol 95: increase of 6 cents per litre
- Diesel 0.05% (wholesale): increase of 1cents per litre
- Diesel 0.005% (wholesale): increase of 4 cents per litre
- Illuminating paraffin: decrease of 11 cents per litre
Note: The CEF does not present daily snapshot data for LP Gas.
The culprit behind the ill turn in fortunes is the rand, which weakened significantly against the dollar this week after the US Fed announced its rate decision.
While the bank cut rates as expected, it also signalled less room for cuts in the new year, pushing a narrative of much slower easing which jolted markets.
The announcement raised concerns about potential economic slowdown.
Like most emerging market currencies, the rand took a hit on the news, pushing back to over R18.00/$ after spending the last month or so around R17.50/$.
The rand is currently trading at R18.30/$ – even weaker than when the latest CEF snapshot was taken.
The Fed’s position also had an impact on oil prices. George Pavel, General Manager at Naga Middle East, said in a note that the Fed’s position would lower demand for fuel, which could weigh on global crude prices.
“While US crude stocks had fallen and the Fed had reduced interest rates by 25 basis points as expected, the central bank’s projections for fewer rate cuts in 2025, driven by inflation concerns, exerted additional pressure on market sentiment, limiting upward momentum in global crude prices,” he said.
More positively, oil prices have been relatively stable, trading in a narrow range of $70-$75 a barrel, and the general sentiment in the market is that prices are likely to stick there or weaken.
This is based largely on analysts expecting a glut next year due to lower demand and burgeoning supplies.
Traders are also uncertain about what the outlook for a Trump presidency will mean for prices—something which analysts are also looking at regarding the Fed’s rate decisions.
For South Africa, most economists and analysts have stated that a Trump presidency would be a net negative for the rand, which could factor into where fuel prices go in 2025.
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