Big jump in petrol prices expected in May

Despite the rand strengthening in recent days, motorists in South Africa shouldn’t expect relief at the pumps next month as global oil prices stay elevated.
The rand remains under pressure and on the back foot given the persistent power supply issues in South Africa and the expected knock-on effects on the economy, the local unit was given a boost this week after tensions eased over potential rate hikes in the United States.
After persisting above R18 to the dollar for much of the month, the rand dropped below this point against the greenback on Wednesday (19 April), as markets looked for clues on the US Fed’s next move.
According to Investec chief economist Annabel Bishop, the forward outlook for the rand is murky. The direction of the rand will depend heavily on the movement of the USD dollar, she said.
“A more definitive end to the US rate hike cycle would spur rand strength against the USD – although a May US hike is still a possibility.”
Local factors are also still in play. As load shedding continues to drag on the economy, markets will also look to the inflation data on Wednesday for indicators of where the South African Reserve Bank may head with local interest rate decisions.
The central bank surprised with a 50 basis point hike in March due to concerns over core inflation in particular. Economists have not yet written off further hikes from the SARB at its next meeting in May.
Petrol price warning
Although volatile, a stronger rand is positive news for local fuel prices, as it is one of the two key factors that impact these costs in South Africa.
However, even a slightly stronger rand is not enough to counteract the impact of rising oil prices, which have maintained their position around the $85 a barrel mark.
According to the latest data from the Central Energy Fund, petrol prices are still in line for a sizeable increase of between 74 cents and 80 cents per litre in May, driven mainly by the cost of international products (directly linked to oil prices).
The stronger rand is only able to counter product prices of +90cpl (cents per litre) by around -13cpl.
Meanwhile, the story for diesel remains more positive, with prices coming down by 18 cents to 41 cents per litre.
Analysis from Bloomberg noted that global oil prices have been fairly “rangebound” since experiencing a sharp spike upwards at the start of the month due to oil producers cutting supply.
Crude recently rebounded after tumbling to a 15-month low in mid-March following turmoil in the banking sector. A surprise announcement by OPEC+ on production cuts and curbed Iraqi flows have underpinned some of the gains.
“There still appears to be some concerns over the broader demand outlook, and weaker refinery margins will only be adding to these concerns,” it said.
Bishop previously warned that rising oil prices threaten to push inflation in South Africa even higher, including through higher fuel prices and other related costs. She said that to effectively counteract rising oil prices, the rand would have to strengthen to under R16 to the dollar.
The only way this would be achieved is through an interest rate hike of 100bps, she said.