Petrol and diesel prices have been building from a small increase in February 2024 to a much bigger hike, with a weaker rand and Red Sea tensions delivering the blow.<\/p>\n\n\n\n
Month-end data from the Central Energy Fund points to a 50 cents per litre hike in prices coming for motorists when the Department of Mineral Resources and Energy (DMRE) announces the official changes for next week.<\/p>\n\n\n\n
Petrol prices are currently showing an under-recovery of between 52 and 54 cents per litre, while diesel – showing rare parity with petrol – are lining up for a 47 to 51 cents per litre climb.<\/p>\n\n\n\n
This is a significant deterioration in prospects for South African motorists, with projected changes moving from a flat rate at the start of the month, a 9-14 cents per litre hike in the middle of the month.<\/p>\n\n\n\n
Both the rand and global oil components of the local pricing are delivering an under-recovery – but it’s the international petroleum prices that are the biggest contributers.<\/p>\n\n\n\n
The local pricing is still reflecting the surge in oil prices seen at the end of last week, when separate attacks in the Middle East – on US troops in Jordan and a hit on a fuel tanker in the Red Sea – sent prices to the highest point in months.<\/p>\n\n\n\n
Oil prices shot to levels last seen when the Hamas attacks on Israel filtered through to markets worrying about escalations in November 2023.<\/p>\n\n\n\n
However, at the start of the new week, tensions over the attacks have simmered slightly, reversing the spike, but still leaving prices at month-long highs.<\/p>\n\n\n\n
Oil is trading at about $83 a barrel, higher than the average over December and early January.<\/p>\n\n\n\n
According to analysis by Bloomberg, the incidents last week mark the latest sign of flaring tensions in a region that accounts for about a third of the world\u2019s crude output. Brent has risen around 10% this month as the situation in the Middle East intensifies.<\/p>\n\n\n\n
The geopolitical tensions have also not done the rand any favours.<\/p>\n\n\n\n
While the local unit is still trading below R19 to the dollar – sitting at around R18.80 by midday on Monday (29 January) – geopolitical tensions still put the market in risk-averse mode, which does not favour emerging markets.<\/p>\n\n\n\n
According to Investec chief economist, Annabel Bishop, the rand has found support in global macroeconomics, however, with the United States avoiding a recession in 2023 and prospects of an interest rate cut by the US Fed looking more certain.<\/p>\n\n\n\n
“The (US GDP) data staved off some concerns, strengthening the case for a soft landing for the US – which remains our central case – while also reducing some degree of market expectations on the timing of the first cut in the US interest rate cycle,” Bishop said.<\/p>\n\n\n\n
For the rand, the currency will remain beholden to the US inflation outcomes, Bishop said, with no notable chance of a US cut seen before May – and prospects for a local rate cut remaining up in the air (likely landing only in July or September).<\/p>\n\n\n\n