Huge blow to petrol prices in South Africa

Escalation of war in the Middle East has shocked global oil markets and shaken the rand, which will have a significantly negative impact on local fuel price recoveries.

Data from the Central Energy Fund (CEF) for the end of the second week in June shows that fuel price recoveries are still in positive territory—indicating a cut in prices.

However, this is based on a rand/dollar exchange rate of R17.80/$ and the international oil price sitting at $68 a barrel.

Following strikes against Iran by Israel on Thursday (12 June), however, both indicators have deteriorated.

Oil prices shot up immediately, now trading above $73 a barrel, and the rand has weakened to above R18.00 to the dollar, which will likely push local fuel price recoveries into the negatives.

This is because the over-recoveries before the attacks were quite small, with the CEF indicating only about 7-10 cents per litre for petrol and 12-13 cents per litre for diesel.

These are the projections from before the attacks:

• Petrol 93: decrease of 10 cents per litre
• Petrol 95: decrease of 7 cents per litre
• Diesel 0.05% (wholesale): decrease of 13 cents per litre
• Diesel 0.005% (wholesale): decrease of 12 cents per litre
• Illuminating paraffin: decrease of 23 cents per litre

According to Bloomberg’s analysis of oil markets, oil surged as much as 13% before paring gains, after Israel carried out waves of strikes against Iran, raising fears of a wider war in a region that accounts for a third of global crude production.

Brent topped $78 a barrel in the biggest intraday jump since March 2022, in the wake of Russia’s invasion of Ukraine, before paring some of the gains.

Israeli Prime Minister Benjamin Netanyahu said the attacks targeted Tehran’s nuclear program and military, and would last until the threat was removed.

Iran vowed to make a severe response, with Supreme Leader Ayatollah Ali Khamenei saying several commanders and scientists had been killed.

Hours after the first Israeli strikes, Tehran launched more than 100 drones in reply, Israel said.

Analysts stressed that markets are now back in an environment of heightened geopolitical uncertainty, leaving the oil market on tenterhooks.

Traders will start pricing in a larger risk premium for any potential supply disruptions.

Bad news for the rand

While oil prices were more directly impacted by the attacks, the rand has also suffered.

The attack and threat of further escalations led to a significant sell-off and exit from risky assets and markets, including the rand.

The rand has been enjoying some strength against the weakening dollar this year, which has helped the country maintain overrecoveries in fuel prices.

According to Investec chief economist, Annabel Bishop, South Africa’s key import is oil and petroleum products, priced in US dollars, internationally.

Along with rand strength against the US dollar, this has helped push imports lower in the first four months of this year, versus the same period in 2024.

The rand averaged R20.44/$ from January to April last year, and R19.92/$ this year for the same period, lowering import costs of commodities and goods benchmarked against international commodities.

“The rand’s strength against the US dollar has aided moderate inflation this year, and has improved South Africa’s trade balance, with petrol prices cut by around R1/litre this year so far, versus a rise of about the same amount for the same period last year,” Bishop said.

The economist noted that while another fuel price cut is currently building for July, this depends on the path of the rand against the dollar.

With the rand now pushing weaker due to the Israeli attacks on Iran and the impact of the higher oil price, these positive moves could be wiped out entirely.

More positively, the Bureau for Economic Research (BER) noted that currency markets settled following an initial knee-jerk reaction after the news of the attack broke.

This could ease the ultimate impact on local recoveries. However, everything will now hinge on how things play out in the coming weeks.

Markets will be keeping eyes on how Iran will retaliate, and whether things escalate. The Iranian defence minister previosuly said the country would retaliate without hesitation if it was attacked.

“The extent of the retaliation will determine much of the market and global reaction,” the BER said.