Petrol price joy on the cards for South Africa in April

Early data from the Central Energy Fund (CEF) shows that South African motorists are in store for more petrol price relief in April – if current markets hold and the National Treasury doesn’t throw an unpleasant spanner in the works with its revised budget.

Data for the end of the first week in March show a significant over-recovery in prices, with petrol showing an over-recovery of between 70 and 83 cents per litre and diesel at around 78 cents per litre.

This is thanks to the much lower global oil price relative to February. The rand/dollar exchange rate is currently neutral for recoveries.

These are the indicators for the end of week one in March:

• Petrol 93: decrease of 70 cents per litre
• Petrol 95: decrease of 73 cents per litre
• Diesel 0.05% (wholesale): decrease of 76 cents per litre
• Diesel 0.005% (wholesale): decrease of 79 cents per litre
• Illuminating paraffin: decrease of 70 cents per litre

If market conditions hold for the rest of the month, motorists will see the second consecutive month of price cuts, following a small 7 cents per litre cut in March.

The start of the month is generally too early to say for certain, but the prices are a solid indicator of what lies ahead.

If the month starts with a sizeable over-recovery, it would mean markets would have to experience a bigger turn for it to reverse into an under-recovery.

As it stands, March is starting on the front foot when it comes to fuel price recoveries.

The biggest contributor to the over-recovery is oil, which accounts for 63 to 78 cents per litre. The global oil price has come down significantly in the first week of March, driven by US President Donald Trump’s tariff war.

Prices dropped to well under $70 a barrel this week as Trump implemented 25% tariffs on its neighbours to the north and south, Canada and Mexico, as he previously promised.

This resulted in retaliatory tariffs from the countries on US goods. Markets were shaken by the move, recovering only slightly when Trump eventually exempted automakers.

Markets fear a huge spike in inflation as a result of the self-imposed tariff war, hitting demand. Supplies, meanwhile, are also better than expected.

Oil is currently trading at $69.50 a barrel, the lowest it has been in months after trading in a narrow range between $70 and $75 a barrel.

Meanwhile, the rand is having its ups and downs in the market, which is giving a neutral contribution to recoveries (0.2 cents per litre under-recovery).

Like all currencies, the rand has been hit by the uncertainty brought by Trump’s trade war, which is just an acute reflection of his wider chaotic governance style.

Emerging market currencies have been under long-term pressure from Trump’s erratic executive orders, with markets not certain what is a threat or an active policy decision.

The latest implementation of tariffs moved the dial from that particular policy being a threat to reality. Trump has threatened similar tariff moves on China and the EU, exacerbating tensions and uncertainty in the market.

South Africa is also suffering through its own woes, with GDP growth figures coming in low for 2024, questions remaining over load shedding at winter approaches, and geopolitical and diplomatic tensions between the US and South Africa impacting investment.

For now, however, the rand’s relative weakness does not outweigh the pressure on oil, so the over-recovery remains.

Big tax question

The outlook for petrol heading toward April is starting off positive, but a lot can happen in the three weeks ahead.

Positive moves by the US to bring some calm and stability to the markets could push oil prices up, diminishing the over-recovery.

The rand could also weaken if the United States takes more extreme measures against South Africa, such as sanctions.

However, a big tax question remains as we look towards the 2025 Budget.

The delayed budget – now coming on 12 March – may contain a nasty surprise for motorists as the National Treasury looks for ways to raise revenue in lieu of hiking VAT.

The original 2025 budget was shelved in February after partners within the Government of National Unity (GNU) pushed back against a proposed hike in VAT to 17%.

While Finance Minister Enoch Godongwana was sent back to the drawing board to come up with a new budget, he warned that trade-offs were required to fund government’s plans.

Taxes must be raised, or critical budget items need to be cut.

Most economists believe that some sort of compromise will be reached on both the revenue and expenditure side of the budget – however, GNU partners say a VAT hike is out.

This means that Godongwana may have to tap into other ‘easy’ taxes like the fuel levy to make up at least some of the shortfall.

The original budget did not have any fuel or Road Accident Fund levy hikes, but this was consolation ‘relief’ to account for the VAT hike. With no VAT hike, fuel taxes may be back on the menu.

With tax adjustments coming into effect from 1 April, any hike to the fuel and/or RAF levy will see any over-recovery eaten away.