Good news for petrol and diesel prices coming next week

Staff Writer29 May 2023

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Despite the rand tanking to its weakest point on record against the US dollar, South African motorists are in for some petrol price relief in June.

The latest data from the Central Energy Fund for the week ending 26 May shows that fuel prices are still drawing an over-recovery on the back of lower global oil prices.

As such – without a sudden and significant turn over the next few days – petrol prices should drop by around 80 cents per litre next week, with diesel on track to come down by around 90 cents per litre.

The biggest contributor to price relief comes from the lower oil price, which is helping to ease international product prices and delivering an over recovery of between R1.27 and R1.37 per litre.

However, the recent rand weakness has eaten away at this pretty significantly, cutting around 43 cents per litre from the benefit.

The Department of Energy has noted that its daily snapshots are not predictive and do not encompass other possible modifications, such as slate levy adjustments or retail margin changes. The department determines these adjustments, which consider various factors, at the end of the month.

Domestic fuel costs are primarily governed by the rand/dollar exchange rate and international oil prices. In South Africa, the fuel price is adjusted on the first Wednesday of every month based on these two factors.

The next price changes will take effect from Wednesday, 7 June.

Rand and oil

According to Bloomberg analysis, oil advanced last week after US President Joe Biden and Republican House Speaker Kevin McCarthy reached a tentative deal on the US debt ceiling, likely averting a catastrophic default.

Oil futures closed 1.2% higher on Friday and rose higher in trade on Monday.

Despite the higher oil close, however, oil is still around 9% lower this year as China’s lacklustre economic recovery and the Federal Reserve’s aggressive monetary tightening weighed on the demand outlook.

Russian supply has also been resilient, even after the nation said it would cut output, while US crude processing has dropped, Bloomberg said.

“Supply dynamics remain in focus, with Saudi Arabia and Russia offering conflicting statements recently on the potential for changes to supply policy from OPEC+,” it said.

The key takeaway – that remains a net benefit to South African motorists – is that oil prices are currently tracking lower over the period, positively impacting fuel prices for consumers.

The rand, however, has done the opposite.

The rand has been under constant pressure in May, beaten down earlier in the month by market panic over a possible grid collapse, damaged even further by allegations from the US embassy that South Africa supplied arms to Russia.

The local unit also took a hit after international banks flagged potential recession in the economy, and then salt was rubbed in the wound when investors reacted negatively to the Reserve Bank’s decision to ‘only’ hike rates by 50 basis points.

While many of these issues have been set aside – Eskom says grid collapse is extremely unlikely, and there is now an independent investigation into the Russian arms claims – the rand remains punch-drunk and carries the high-risk premium.

Without a significant change in policy, or some good news from local economic metrics, the rand is expected to stay on the back foot, leaving South Africa vulnerable to more blows.

The Department of Energy will announce official petrol price changes before they come into effect next week.