Warning signs for petrol prices in February

After three consecutive fuel price increases, early data shows South Africans may see more pain at the pumps in February.

Fuel prices did not start 2025 on a positive note, with prices going up by 12 and 19 cents per litre for 93 and 95 petrol respectively, and between 7.50 and 10.50 cents per litre for diesel.

This was due to both the global price of petrol increase in December and the rand coming in weaker relative to November.

According to the latest data from the Central Energy Fund, movements in international produce prices show a 27.704 cent under-recovery for 95 petrol in South Africa.

The jump in oil prices comes amid economic hopes in one of the world’s largest economies, with China potentially seeing more demand.

In his New Year’s address, Chinese President Xi Jinping said that China will be more proactive in measures to boost economic growth in 2025, potentially boosting oil demand.

There is also an expectation of higher inventories as heating oil and gasoil are needed in the UK, EU and US amid severe cold fronts.

The movement in the exchange rate between the rand and the US dollar has also led to an under-recovery of 37.0222 cents for 95 petrol.

The rand has been severely impacted by US interest rate cut expectations cooling, leading to dollar strength.

Combined, international prices and the rand would lead to an increase of 65 cents for a litre of 95 petrol.

This picture is worse for diesel, with price increases ranging from 70 cents to 74 cents per litre.

The proposed increases are as follows:

• Petrol 93: increase of 69 cents per litre
• Petrol 95: increase of 65 cents per litre
• Diesel 0.05% (wholesale): increase of 70 cents per litre
• Diesel 0.005% (wholesale): increase of 74 cents per litre
• Illuminating paraffin: increase of 52 cents per litre

The rand

Investec Chief Economist Annabel Bishop noted that the rand weakened sharply in the second half of December to an average of R18.91/$.

The rand remains in this region, sitting at R18.71 on 7 January 2025.

The US monetary policy meeting on the 18th of December saw inflation forecasts for 2025 rise from 2.0% to 2.5%.

This increased inflation forecast has led to concerns over fewer rate cuts in the world’s largest economy.

Fewer US interest rate cuts are supportive of a stronger US dollar, which has been instrumental in weakening the rand.

“The substantial shift in forecasts held early in December 2024 versus early in January 2025 has been a major reason for the rand weakening by more than R1/USD over the period,” said Bishop.

The developments have little to do with recent domestic updates, with the rand far less volatile against the pound and euro.

Oil prices

Following a rally at the start of the year following Xi’s address, crude oil prices could remain under some pressure.

Maria Agustina Patti, a Financial Markets Strategist Consultant to Exness, said that the market could see price corrections after its recent rally as concerns around demand levels remain.

“Traders could continue to monitor the economic developments in major oil-importing countries to gauge the demand potential,” said Patti.

“In this regard, rising supply from non-OPEC countries and concerns about weak demand from China could put the market under more pressure.”

There are also concerns about a tightening of supply from Russia and Iran due to Western Sanctions, which could support crude prices and put a floor under the market.

However, at the same time, there has been a stronger demand for Middle Eastern oil, which was reflected in the recent rise in Saudi Arabia’s oil prices for Asia.

“Market participants’ are now focusing on potential policy shifts including Biden’s recent measures to restrict oil and gas developments which could affect supply levels. Additionally, US crude inventory data remains a critical factor in assessing near-term dynamics,” said Patti.

With the latest CEF data only showing data from the start of the month, there is still potential for shifts in official fuel prices in February.

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