South Africa’s months-long fuel price reduction party could soon be over.
The significant petrol and diesel price cuts that seemed to be coming in November 2024 have all but evaporated due to a surging oil price and weakened rand.
The country’s petrol and diesel prices are determined primarily by the Basic Fuel Price (BFP).
The BFP is adjusted early in each month using a review period that covers most of the preceding month of the price change and the tail-end of the month before that.
The Central Energy Fund (CEF) provides a daily update on its calculations for the BFP.
Its data includes potential over-recoveries in fuel prices during the review period, which requires fuel price reductions, or under-recoveries, which lead to fuel price increases.
After the first day of the review period for November’s prices — 27 September 2024 — the per-litre retail price of unleaded 95 and unleaded 93 petrol showed over-recoveries of about R1.40 and R1.34, respectively.
50ppm and 500ppm wholesale diesel prices also appeared to be headed towards declines of around R1.40 per litre.
The outlook remained positive up to 1 October 2024, after which the over-recoveries began to shrink rapidly.
As of Thursday, 10 October 2024, the over-recoveries of unleaded 95 and unleaded 93 had plummeted to 4 cents and 13 cents, respectively.
The over-recoveries in wholesale diesel prices have been completely wiped out.
While it is not unusual for the CEF’s outlook to change over the review period, this is a particularly dramatic swing over a two-week timeframe.
Investec chief economist Annabel Bishop has pointed out that the two biggest factors influencing the price of fuel in South Africa — the oil price and dollar-to-rand exchange rate — have both swung against price reductions in November.
Bishop explained that the Brent crude oil price increased to more than $80 per barrel in the past week and over R1,400 per barrel as the rand weakened.
The table and graph below show how the potential cuts in petrol and diesel prices reduced from the start of the review period until 10 October 2024.
Unleaded 95 petrol (retail) | Unleaded 93 petrol (retail) | 50ppm diesel (wholesale) | 500ppm diesel (wholesale) | |
27 September 2024 | R1.40 | R1.34 | R1.40 | R1.46 |
30 September 2024 | R1.41 | R1.35 | R1.41 | R1.39 |
1 October 2024 | R1.40 | R1.38 | R1.38 | R1.36 |
2 October 2024 | R1.05 | R1.06 | R1.02 | R1.01 |
3 October 2024 | R0.80 | R0.83 | R0.77 | R0.77 |
4 October 2024 | R0.57 | R0.62 | R0.53 | R0.53 |
7 October 2024 | R0.39 | R0.45 | R0.34 | R0.34 |
8 October 2024 | R0.25 | R0.33 | R0.20 | R0.21 |
9 October 2024 | R0.15 | R0.23 | R0.09 | R0.10 |
10 October 2024 | R0.04 | R0.13 | R0.00 | R0.01 |
Swing stems from thousands of kilometres away
The surging oil price is driven by an escalating conflict in the Middle East.
The biggest event was Iran’s missile attack on Israel on 1 October 2024, which came in retaliation to the latter’s attacks on Hezbollah targets in Lebanon.
Israel allegedly executed a supply-chain attack that culminated in the detonation of explosive hidden in pagers and walkie-talkies used by Hezbollah operatives.
The impact of these developments can clearly be seen in the timing of the reduction in the potential fuel price cuts in the graph above.
The oil price has surged because Israel has promised to respond to Iran’s attack, and one of the pathways it could choose is targeting Iran’s oil sites.
According to the US Energy Information Administration (EIA), Iran is the world’s ninth-biggest oil producer and accounts for around 4% of the world’s demand.
While that is already a significant chunk, the potential spillover of the conflict into neighbouring states with even greater outputs has caused greater concern.
The Gulf states of Saudi Arabia, United Arab Emirates (UAE), and Qatar have lobbied the US to discourage Israel from carrying out such attacks.
The oil-producing giants fear that Iran’s proxies in Iraq or Yemen could also target the US-friendly states’ oil infrastructure if they opened their air space to Israel and its allies.
Saudi Arabia is the world’s second-biggest oil producer, accounting for around 11% of global consumption, while the UAE is the eighth-biggest producer.
Unless the oil price sees a sudden reduction, which is unlikely given the instability in the Middle East, it appears that the petrol and diesel prices in South Africa will increase in November 2024.
That will be the first hike in local fuel prices since May 2024.