More good news for petrol prices on the cards for South Africa

Early data for petrol and diesel recoveries at the start of the month are putting motorists in South Africa on solid footing for another round of cuts in July.

Data from the Central Energy Fund (CEF) for the end of the first week in June shows an over-recovery in prices for petrol at around 29 cents per litre, and for diesel at around 46 cents per litre.

This is an early indication of favourable conditions for both oil prices and the rand/dollar exchange.

These are the early projections:

• Petrol 93: decrease of 30 cents per litre
• Petrol 95: decrease of 28 cents per litre
• Diesel 0.05% (wholesale): decrease of 47 cents per litre
• Diesel 0.005% (wholesale): decrease of 45 cents per litre
• Illuminating paraffin: decrease of 57 cents per litre

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

More importantly, they put the balance on the positive side, meaning conditions would have to deteriorate significantly for recoveries to swing into the negatives.

Fortunately, despite ongoing global uncertainty and local pressures, the economists don’t anticipate any wild swings for global oil or the rand.

The rand has been relatively stable under R18.00 to the dollar, starting out the new month benefitting from dollar weakness.

According to Investec Chief Economist Annabel Bishop, the currency is likely to remain volatile for the rest of the year, but sentiment in global markets has generally improved.

This has made risk assets more appealing. However, there are risks to the status quo as global trade and tariff relations may yet sour.

More positively, the local political environment around the Budget and the Government of National Unity (GNU) appears to have settled down, softening some of the risk premium attached to the rand.

Bishop noted that mid-January saw the rand at R19.23/$, then in April it hit R19.93/$ as fears over the loss of the DA in the GNU rattled markets.

It was also at around this time that the Trump administration launched its global tariff war, including reciprocal tariffs (30% on South Africa) which it later paused for 90 days.

A risk factor is that the tariffs will again kick in once the pause ends, which could again upset markets and hurt the rand.

Bishop added that South Africa’s persistently low-growth environment will also keep the rand from strengthening to its fair-value levels of around R16/$, with structural constraints continuing to limit the economy.

Oil prices sitting firm for now

Global oil prices have also settled below the $65 a barrel mark, contributing to over-recoveries in local pricing.

According to Bloomberg analysis of the market, prices have stuck to these levels for most of May, with easing trade tensions offsetting a brewing supply glut.

Oil prices dropped to around $60 a barrel amid the worst of the US-China trade tensions, and these levels are again in view as the world’s two biggest economies again butt heads.

While forecasters view the market as balanced heading into the second half of the year, trade tensions and could dampen demand again.

At the same time, the OPEC+ alliance has been adding barrels back to the market at a faster-than expected rate, further clouding an already weak outlook for the second half of the year.

OPEC and its allies have agreed to increase oil supply by 411,000 barrels per day in July, matching the additions for May and June.

The Bureau for Economic Research noted that this was in line with expectations. However, there are concerns that the region might opt for higher rates, which could push prices lower.

As things currently stand, both the rand/dollar exchange and oil prices are contributing to over-recoveries in local fuel pricing.

With a lot of uncertainty expected to hit global markets this month, the picture may very well change before month-end.