Get ready for more petrol price pain in April
Fuel price recoveries in South Africa are off to a horrible start for motorists in March, with extended rand weakness against the dollar and oil prices grinding higher, putting prices on the back foot.
Early data from the Central Energy Fund for the start of the month shows that petrol and diesel prices are both showing an under-recovery, pointing to fuel price hikes for April.
Petrol prices are showing another sizeable under-recovery of around R1.15 per litre, while diesel prices are showing a smaller under-recovery of around 65 cents per litre.
If current market conditions persist or are unable to otherwise reverse the trends seen this week, South African motorists and industries will be hit with a third consecutive fuel price hike this year, since prices went up in February.
This will also add to the sting of the big hike in prices in March, where petrol and diesel went up around R1.20 per litre on Wednesday (6 March).
The main driver behind the current under-recoveries is, once again, international petroleum costs (pegged to oil prices).
According to Bloomberg analysis, while oil prices have been trading in a relatively fixed range, they have been slowly and steadily grinding higher since the start of the year.
This has been supported by cutbacks from oil-producing countries (OPEC+) as well as continued tensions in the Middle East and disruptions in shipping in the Red Sea – the latest of which was a strike on a commodity ship on Wednesday.
“The creeping pace of gains has crushed market volatility, and the Organization of the Petroleum Exporting Countries and allies agreed on Sunday to extend their existing output cuts to the end of June, potentially tightening the market and drawing down stockpiles,” it said.
This has added a premium of as much as $1 per barrel – the highest in four months, Bloomberg said.
Volatility in oil markets is currently contributing 55 cents to 110 cents per litre to the under-recovery – meaning that South Africans won’t see any meaningful decrease in petrol prices until markets settle.
The other side of the equation – the rand’s weakness against the dollar – is less impactful, currently contributing only 7 cents to the under-recovery.
After sticking well above R19 to the dollar for more than a week following the 2024 budget, the rand has finally edged under that level to trade at around R18.80.
South Africa doesn’t owe the recovery to anything changing within its risk premium – markets are still anxious over the coming elections while pricing in the ongoing power, water, infrastructure and logistics crises – but rather to gold.
Analysts have pointed to a surge in gold prices as the reason for the currency’s recovery. Gold prices held above the $2,100 level on Wednesday, near a record peak hit in the previous session – but this is likely to be limited relief.
Notably, even with the boost from gold, the rand is down 2.8% against the dollar since the beginning of the year.
While fuel prices have started the month squarely on the back foot, it is still too early to make a definite call for April – with many weeks ahead for shifts to potentially take place.
A better picture of fuel price direction will emerge in the middle of the month.
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