Motorists in South Africa should brace for more petrol price pain in May, with oil prices on the up, undercutting recent rand strength.
The latest data from the Central Energy Fund at the end of the second week in April shows that petrol prices are still showing an under-recovery (hike) of around 30 cents per litre, putting a fourth consecutive hike on the cards for May.
Diesel prices still show favourable dynamics, currently showing an over-recovery (drop) of around 35 cents per litre.
Petrol prices have climbed by a net R1.80 so far this year, with increases in February, March and April after starting the year off with a decent 76c per litre cut in January.
Diesel prices, meanwhile, have gone up by a more muted 61 cents per litre on balance since January.
The main driver behind higher prices is the price of global oil – although the rand’s relatively weaker position vs the US dollar in the first quarter of the year (~R19/$) has also done no favours for recoveries.
According to market analysis by Bloomberg, oil prices have been climbing higher due to the tensions and escalations in the Middle East.
This week, prices resumed gains as Israel braced for a potential strike by Iran or its proxies, and traders looked ahead to an International Energy Agency report on the supply and demand outlook, it said.
Brent crude climbed above $90 a barrel, up significantly from the $75 per barrel at the start of the year, and even against the $80-$85 per barrel range seen more recently.
While the war in the Middle East is the headline grabber for oil moves at the moment, escalating geopolitical tensions in Russia and Ukraine are also in play, as well as general demand profiles driven by supply and demand in the global market.
For example, supply cuts by oil-producing nations (OPEC+) have even put $100 a barrel on the radar for some analysts, spelling even more trouble for fuel prices ahead.
“Brent is around 17% higher this year, in part due to OPEC+ supply cuts,” Bloomberg said.
“The International Energy Agency will provide a snapshot of the market later Friday, giving more insight into global balances, which are in focus after the group last month said markets face a supply deficit if OPEC+ continues its cuts.”
According to economists at the Bureau for Economic Research (BER), sustained high oil prices pose a real upside risk to global and local headline inflation dynamics.
One thing that is currently working in favour of fuel price recoveries, however, is a stronger rand.
While the rand has lost some ground against the dollar this week, the BER noted that this was primarily due to the greenback’s strength, not the rand’s weakness.
“Indeed, the local currency appreciated against both the euro and pound last week,” it said.
The rand has strengthened from over R19 to the dollar (hitting as high as R19.25) to as low as R18.46; however, shifting sentiment around interest rates halted this recovery.
Global markets have pushed out the expected first rate cut in the United States to the fourth quarter of the year (likely September), which has had a negative impact on the rand. It reached R18.83/$ on Thursday and pulled back to around R18.70 on Friday.
Locally, expectations for interest rate cuts have also been pushed back, with some betting that cuts will be pushed into 2025, with no changes in 2024 at all.
Despite the rand’s volatility, the stronger position relative to last month is still contributing around 6 cents per litre to fuel recoveries, working to the benefit of motorists..