Despite the rand again crashing to its weakest levels on record against the dollar, a dip in global oil prices has all but cemented a cut to petrol and diesel prices next week.<\/p>\n
The rand crashed to a new record low against the dollar on Thursday (1 June), trading at over R19.90 to the dollar in early morning sessions before recovering to around R19.60 at the close of business.<\/p>\n
The local unit tracked lower due to international factors – specifically, weaker economic data from China, putting pressure on commodity-linked and emerging markets.<\/p>\n
This exacerbated weeks of hard knocks to the rand over the last few weeks, bookended by investor panic over the ongoing power crisis and hawkish commentary from the South African Reserve Bank on the country’s growth prospects.<\/p>\n
Sitting in the middle – geopolitical snafu involving South Africa’s proximity and friendliness with Russia.<\/p>\n
Despite the rand taking a beating, the latest downturn emanating from China also had a cooling effect on oil prices, which dropped to around $72 a barrel. This is significantly lower than the $86 levels at the start of May and is the main contributor to the over-recovery in local fuel pricing.<\/p>\n
According to banking group FNB, current data shows an over-recovery in fuel pricing, with petrol prices expected to come down by 6.5% year on year, with diesel coming down by 16%.<\/p>\n
Month-end data from the Central Energy Fund (CEF) shows that prices should decrease by around 74 cents per litre for petrol, 85 cents per litre for diesel, and 44 cents per litre for illuminating paraffin<\/strong>. This was priced with the rand at R19.83 to the dollar.<\/p>\n The coming fuel price cuts have been supported by the dropping of international product prices – driven by lower oil prices. The rand has exerted upward price pressure, however, the bank said.<\/p>\n “The rand has reflected foreign policy issues as well as weak macroeconomic fundamentals,” it said.<\/p>\n Things like escalated load shedding and continued weakness in key network industries have exacerbated weaker revenue collection and higher-than-projected wage bill pressures. In general, South Africa’s risk premium has worsened, the bank said, driving up the rand.<\/p>\n The situation doesn’t look like it will improve in the medium term, either, with key risks associated with the August BRICS summit, as well as the 2024 elections. These events – along with the risk of stage 8 load shedding in the coming months – will likely exert upward pressure on the rand, FNB said.<\/p>\n On the oil front, FNB noted that while oil prices have been pushed lower by a weaker global economy, the situation could change when the OPEC+ nations meet in early June.<\/p>\n This, of course, will come too late to impact June’s petrol prices but could be seen as a risk factor for higher prices in the coming months.<\/p>\n According to Bloomberg analysis, traders will be looking to the OPEC+ meeting – planned for the coming weekend – to discuss the group\u2019s production policy.<\/p>\n “Resilient Russian exports are part of the reason why futures are down around 15% this year, as well as aggressive monetary tightening by the Federal Reserve,” it said.<\/p>\n “The 23-nation OPEC+ alliance faces a divided oil market when it convenes on 4 June. Brent crude prices dropping to $70 or below would create a 60%-70% likelihood of a production cut by some members,” it said.<\/p>\n Production cuts would artificially push up prices in the market by limiting demand. A similar situation hit in late April\/early May which pushed spot prices up to $86 a barrel.<\/p>\n As things stand, however, even with the much weaker rand, motorists are in for a petrol price cut when changes come into effect next week (7 June), delivering some much-needed relief.<\/p>\n With extra income for consumers, FNB advised South Africans to take any extra money they save from reduced petrol prices and put it towards paying off their unsecured credit.<\/p>\n This is important, especially considering that interest rates have again increased, making debt repayments more expensive, the bank said. The South African Reserve Bank hiked rates by 50 basis points in June, taking the repo rate to the highest point since 2009.<\/p>\n “Alternatively, put it in savings where you can leverage off those high interest rates as well,” it said.<\/p>\n The Department of Mineral Resources and Energy will announce the official fuel price adjustment before they come into effect on Wednesday, 7 June.<\/p>\n
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