South African motorists can expect a significant cut to petrol and diesel prices in December, with a relatively firmer rand beefing up the over-recovery from much lower global oil prices.
This will also offer some wider relief to the economy, following the shock inflation numbers for October, which were pushed higher due to fuel price hikes that month.
According to Investec chief economist Annabel Bishop, while inflation in October surprised on the upside to hit 5.9% – versus market expectations of 5.4%-5.7% – the country should still end the year with inflation comfortably seated in the Reserve Bank’s target range of 3% to 6%.
Fuel price hikes in September and October pushed inflation higher – but price cuts in November and expected cuts in December will have the opposite effect.
“November saw a large petrol price cut of R1.78/litre, exerting downward pressure on the inflation outcome. A roughly R1.00 petrol price cut is also lined up for December, bringing further relief to inflationary pressures,” the economist said.
The latest data from the Central Energy Fund (CEF) shows that petrol prices are pushing an over-recovery of around R1.05 per litre, while diesel is showing a much bigger over-recovery at R2.25 per litre.
The rand – which has been largely range-bound under R19/$, but unable to push past R18/$ – is still contributing to the over-recovery, being in a stronger position relative to last month.
Bishop noted earlier this week that it is mainly being driven by global sentiment, with a stronger US dollar causing the local unit to lose ground. The currency is expected to remain volatile, particularly as the US contemplates its next move on interest rates and global markets react to changing sentiment.
Oil prices, meanwhile, have remained well below $85 a barrel, pushing toward $80 a barrel.
The oil front is the key concern, with tensions and conflict still high in the Middle East – but for the time-being, markets have looked elsewhere for direction.
“Global benchmark Brent sank below $81 a barrel after a volatile session on Wednesday that saw prices swing by more than $4,” Bloomberg said.
“OPEC+ delayed the meeting to the end of the month as disputes arose over quotas for African members, including Angola.”
The looming OPEC+ meeting has been clouded by indications that output outside of the group is expanding, prompting speculation the cartel would decide to extend production cuts or possibly deepen them, Bloomberg noted.
Amid signs of abundant supplies, Europe is contending with a glut due to a combination of lacklustre demand and an influx of US cargoes. But still, the analysts noted that the OPEC+ meeting delay “heightens the drama, probably not the outcome”.
Despite the slight ups and downs on the currency and oil front, with one more week to go to the end of November, it would take a significant reversal in both the rand and oil price trends to undo the fuel price relief on the cards for December.
The Department of Mineral Resources and Energy will announce the official changes before the come into effect on Wednesday, 6 December 2023.