Following a sizeable drop in petrol and diesel prices this week, the balance of costs for fuel prices are off to a shaky start this month.<\/p>\n
Data from the Central Energy Fund for the first week of June points to an over-recovery in petrol prices, while diesel is showing a slight under-recovery – pointing to a potential price cut and price hike for July.<\/p>\n
As things currently stand, petrol could come down by between 3 and 13 cents per litre, while diesel looks flat (between a drop of 1 cent per litre or a hike of 2 cents per litre).<\/p>\n
The start of the month is far too early to predict where prices will go, with three weeks remaining to balance the two key factors that determine price shifts: the USD\/ZAR exchange rate and global oil prices.<\/p>\n
However, the daily snapshots give a good indication of where prices currently stand and which direction they will go if these two factors shift.<\/p>\n
In this vein, South African motorists stand to benefit the most from recent rand strength, as the weak USD\/ZAR exchange rate is currently the biggest contributor to an under-recovery in both types of fuel.<\/p>\n
The CEF’s data shows that the rand\/dollar rate is currently contributing to an under-recovery of around 16 cents per litre. This is already down quite significantly from the 35 to 40 cents per litre under-recovery in June.<\/p>\n
The June petrol and diesel price cuts were mainly driven by the much lower oil prices in May. At the start of the new month, with the balances reset, the oil price isn’t contributing as much to an over-recovery.<\/p>\n
According to the CEF, international product prices – which are directly impacted by oil shifts – are currently only contributing to an over-recovery of between 13 and 30 cents per litre for petrol and diesel, respectively.<\/p>\n
In effect, this means that if oil prices increase in the coming weeks, the over-recovery will likely push into an under-recovery, pushing fuel prices up. The rand would have to strengthen significantly to counter this – or, if it weakens again, it will simply continue adding pressure.<\/p>\n
Outlook<\/strong><\/p>\n According to banking group FNB, key risks to look out for over the medium term are increased levels of load shedding, how South Africa deals with the BRICS summit and Russian President Vladimir Putin and other issues that may impact the rand.<\/p>\n The good news for South Africans, for now, is that the rand has recovered from the record levels of weakness seen in May, with market analysts expecting the unit to settle under R19.00 to the dollar.<\/p>\n The recent gains made by the rand come off the back of more positive market sentiment towards South Africa from surprisingly resilient economic data, Eskom easing load shedding to the point that blackouts are suspended for most of the day, and an apparent U-turn by the national government on its favourable approach to Russia.<\/p>\n On Friday (9 June), the rand was trading at R18.77 to the dollar, a recovery of 6.2% from the record high of R19.92 it reached a week ago. While this is a positive move, analysts have noted that the rand lost 10% of its value against the dollar and is unlikely to recover this fully.<\/p>\n Estimates put the eventual final recovery (i.e., stability) at 5%, which equates to around R18.90 to the dollar. Any positive moves in energy generation or policy shifts from the government that boost business confidence and consumer sentiment could improve this – however, the prospects here are slim.<\/p>\n More worrying, however, are movements in global oil prices.<\/p>\n Oil prices in May dropped significantly as global production looked to slow, tanking prices from around $85 a barrel in April to $75 a barrel in May. Since then, oil prices have been largely range-bound.<\/p>\n The over-recovery from the drop has already been reflected in June’s petrol price adjustments, meaning no changes in oil prices in the coming months will yield a flat result.<\/p>\n As things currently stand, according to Bloomberg analysis, global oil prices are currently under pressure (read: a more positive scenario for motorists) as global demand looks to be waning. Prices logged a second week of price decline (1%) as signs point to China – one of the world’s biggest consumers and producers – having a stalled recovery.<\/p>\n Oil-producing nations (OPEC+) have signalled a cut in production of 1 million barrels a day to pressure supply and boost prices, however this has largely been countered by the demand worries, Bloomberg said.<\/p>\n
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