More petrol price joy expected in June

Early data from the Central Energy Fund (CEF) shows that fuel prices are starting May off on the front foot, with expectations for another cut to pump prices in June.

The data, covering the first week in May, shows that both a lower oil price and a stronger rand are contributing to over-recoveries in fuel prices.

Petrol prices are showing an over-recovery of around 56 cents per litre, while diesel is showing an over-recovery of 94 cents per litre.

Should the current market conditions follow through the rest of the month, motorists can expect more relief in June.

These are the early projections:

• Petrol 93: decrease of 57 cents per litre
• Petrol 95: decrease of 56 cents per litre
• Diesel 0.05% (wholesale): decrease of 94 cents per litre
• Diesel 0.005% (wholesale): decrease of 94 cents per litre
• Illuminating paraffin: decrease of 89 cents per litre

While the start of the month is still too early to decisively call the likely movement for fuel prices next month, they give a solid indication of where recoveries are headed.

Starting off in positive territory means that oil markets and currency exchanges would have to swing significantly to lead to an under-recovery, putting motorists in good stead.

Additionally, economists don’t foresee this happening.

Investec chief economist Annabel Bishop this week noted that both global oil markets and the rand/dollar exchange are likely to remain favourable in the weeks ahead.

The rand has strengthened since the start of the month, recovering to R18.16 on Thursday (8 May) as markets digested the hold on interest rates by the US Fed.

The tone on rate cuts has changed significantly from the dour predictions of an indefinite hold in April.

This is thanks to the impact of US President Donald Trump’s global tariff and trade war not being as pronounced as expected, particularly as the president walked back some of the more damaging policies.

Markets now anticipate two to three interest rate cuts in the US this year, softening the dollar and supporting a stronger rand.

Locally, expectations for interest rate cuts in South Africa have also turned, with economists expecting one or two cuts in the cycle.

While the prevailing economic data has been somewhat supportive of the rand, the unit is still far off from the sub-R18/$ levels seen late 2024 and early 2025.

According to Bishop, this is because a lot of uncertainty still persists in the market. However, it is in a stronger position relative to April, helping with fuel recoveries.

Oil prices tumble

The larger contributor to the current fuel price recoveries is the weaker global oil price, which has moved below $62 a barrel.

Oil prices have also been subject to the wider market turmoil brought by Trump’s tariff war, impacting demand and pushing prices lower.

This has come even as producers increase supply, creating a glut in the market.

According to Bloomberg analysis of the oil market, crude has been on a downward trajectory due to concerns around the potential hit to global growth from Trump’s sweeping tariffs, as well as recent OPEC+ decisions to boost idled output.

However, it noted that prices could firm up as the United States engages with China on trade, and talks to major economies like the UK on its actual plans going forward.

“Donald Trump is expected to announce a deal with the UK that may signal the direction his global trade war will take,” the analysts said.

“While the US president didn’t identify the country or details about the agreement in a Truth Social post, people familiar with the matter said it was expected to be with the UK.”

The news comes ahead of trade talks between US and Chinese officials this week, though Trump said on Wednesday that he’s unwilling to preemptively lower tariffs on China to jump-start negotiations.

Other analysts have noted that any gains on the market from these negotiations will be limited due to the demand-side concerns lingering thanks to global economic uncertainty.

The Fed’s hold on interest rates has added to a cautious outlook.

Regardless, the lower oil price relative to April is helping recoveries in South Africa, contributing between 30 and 67 cents per litre to the positive position.