From bad to worse for petrol prices in September
The latest data from the Central Energy Fund (CEF) for the first week of August shows that motorists are lining up for pain in September, with a new flare-up in Iran adding to the pressure.
According to the CEF’s data, the steep under-recovery at the beginning of the September review period has eased, cooling from around R1 per litre for petrol to about 50 cents per litre.
Diesel’s under-recovery has also receded, from around R5 per litre to around R3 per litre.
However, the under-recovery remains, keeping motorists on the hook for a price hike in September if global oil markets don’t swing into more positive territory.
Unfortunately, the latest market indicators and analysis are not painting a hopeful picture.
Most notably, oil prices have continued to extend gains after a report that Iran attacked “hostile targets” in the Strait of Hormuz.
Adding to the pressure, Tehran is seeking to bar United States ships from the critical waterway in a deal with Oman, while adding tolls for others.
This has caused Brent crude to rise, once again, to above $84 a barrel, after surging almost 4% in the previous session—the main cause of local under-recoveries in fuel prices.
These are the recoveries at the end of the first week of August.
- Petrol 93: increase of R0.40 per litre
- Petrol 95: increase of R0.51 per litre
- Diesel 0.05% (wholesale): increase of R3.11 per litre
- Diesel 0.005% (wholesale): increase of R3.22 per litre
- Illuminating paraffin: increase of R2.40 per litre
It must be noted that it is still too early in the month to make any certain call for where prices will end up in September. However, the data serves as a baseline for tracking trends.
The weeks ahead could see markets turn, reducing the under-recovery further or even pushing it into an over-recovery.
The inverse of this happened in July, where a strong over-recovery reversed into a neutral position for petrol prices and an under-recovery for diesel, because of the US war in Iran and Russia’s war in Ukraine.
In addition, the daily recovery data does not include other adjustments, such as the slate levy. The impact of this will only be determined at the end of the month.
The rand is helping
While fuel price recoveries are currently at the mercy of global oil prices, the rand/dollar exchange rate is helping.
The rand has been remarkably resilient against the dollar throughout the turmoil of the US-Iran War, fluctuating around a neutral position in fuel recoveries.
The latest data shows the rand is contributing only 1 cent per litre to an over-recovery (thus reducing the under-recovery). Its contribution to an under-recovery in July was equally as marginal.
However, like oil prices, the rand is also taking direction from global markets, particularly as investors await developments in the US-Iran War.
The unit is currently trading at around R16.35 per dollar, relatively unchanged.
The dollar, meanwhile, is also broadly steady against a basket of currencies, continuing to struggle for direction after hitting a six-week low on Monday.
The outlook is uncertain and hinges on peace between the US and Iran.
According to Investec Chief Economist, Annabel Bishop, currencies are expected to strengthen somewhat into the end of the year.
However, this is only if the Middle East War does not flare up again in intensity and continue to disrupt commodity prices and global shipments.
More positively, the rand has been boosted by the US Federal Reserve holding interest rates—after the SARB also held local rates—and should continue to strengthen if expectations remain in this vein.
“The rand tends to weaken on US interest rate hikes, and sees great sensitivity to Fed communications,” Bishop noted.
With less communication from the Fed, this could lead to volatility in the rand, she said, but added that as long as expectations for further US rate hikes unwind, the rand should remain resilient.
“Much will depend on incoming inflation prints, with both the US and South African monetary authorities adopting a wait-and-see attitude recently,” she said.
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