Warning over petrol prices in South Africa

South African motorists can expect a month of wild swings when it comes to petrol price predictions for May as markets swing wildly and take in everything from global tariff wars to local political drama.

However, economists warn that, should the Government of National Unity (GNU) fall apart, the scales will undoubtedly tip into bad news for pricing.

This has been evident in significant fluctuations in the global oil price and pressure on the rand/dollar exchange rate.

These are the two biggest factors contributing to local fuel price recoveries, and both are currently at odds given recent developments.

Oil prices are currently accounting for an over-recovery of between 16 and 52 cents per litre. The weak exchange rate, meanwhile, is contributing to an under-recovery of around 20 cents per litre.

This is mixing things up for petrol prices in particular, which are currently showing flat recoveries. Diesel drivers are on better footing with the balance positive.

If market conditions stay as they are—which is unlikely given the volatility—petrol prices would be flat in March, while diesel would be coming down by around 30 cents per litre.

Working in the favour of lower fuel prices in South Africa, global oil prices have weakened significantly since the start of the month, dropping below $65 a barrel.

Oil prices hit a four-year low after US president Donald Trump launched a global tariff war, hitting key trading partners with tariffs ranging from 10% to 50% on imports.

According to Bloomberg analysis, the tariff war has stoked concerns about a global slowdown or recession that would jeopardize energy demand.

At the same time, OPEC+ delivered a bigger-than-expected output hike, hurting the outlook for oil-market balances.

While prices have rebounded slightly as a calmer tone returned to global markets, futures are still much lower than in March, leading to a significant over-recovery in local pricing.

Traders are keeping an eye on the market, as well as retaliation from economies like China, but overall, prices are weaker with both supply and demand supporting lower prices.

Trump’s trade war has also had a significant impact on global currencies, with emerging markets in particular hit hard has money flowed into haven assets, decidedly risk-off.

However, Trump’s salvo also carried the consequence of weakening the dollar as global recession fears took hole.

According to Investec chief economist, Annabel Bishop, in a more typical South African environment, the weaker dollar would have seen the rand strengthen, likely pushing toward R17.50/$.

Unfortunately, South Africa is currently dealing with the fallout of a dramatic and twist-filled budget vote, where the Government of National Unity (GNU) split, causing a gaping divide between its two biggest parties, the ANC and the DA.

The DA rejected the budget in parliament, voting against it, and the ANC shopped for votes to pass the budget outside the GNU.

Both parties viewed the other’s actions as a betrayal.

This has inserted a significant degree of uncertainty into the equation, with inter-party talks and negotions ongoing about the future of the GNU.

This is putting pressure on the rand, keeping it above R19.30/$ at a time it should have been getting a bit stronger.

Bishop said that, should the DA exit the GNU or otherwise be given the boot, the rand will likely push to its worst levels on record, hitting about R21.00/$.

Should the GNU replace the party with more left-leaning opposition parties, the rand could weaken even further, she said.

What this means for petrol prices is that the current rand weakeness is all but wiping out the fuel price recoveries delivered by the lower oil price.

Should the worst-case scenario play out, “a weaker rand will raise fuel prices and the cost of living,” the economist warned.