Relief at the Pumps.

Consumers in general have been absorbing all sorts of economic punches, some below the belt. The on-going increases in the price of fuel in general is a case in point. Continual and excessive increases only serve to drag down the economy and adds to the price of a basket of good, whatever that may be. This has a ripple effect on food inflation, a critical component of the CPI basket. So, I am just glad to notice data in general for the third week in May showing that South African motorists are in store for a sizeable cut to prices – with petrol and diesel in line for reductions. It’s about time.

For the price of fuel to come down, two factors must be favourable. The Rand must be strong against the dollar and the international barrel price of oil must also show weakness.  With the international focus in the automotive industry being on electrification of mobility in general, one would expect to see a marked decreased in the price of oil and ultimately fuel. But this has not been the case with oil running boss with fair to good demand of the commodity. Brent crude has eased somewhat since April.   

And according to the data from the Central Energy Fund (CEF), petrol and diesel prices are showing an over-recovery of between 98 and 100 cents per litre. Thus, petrol prices could be coming down by 97-100 cents per litre, and diesel prices could be cut byan approximate 100 cents per litre. This is about 25 cents per litre more than mid-month estimates, pointing to a much more positive direction for motorists.

 

These are the expected changes:

Petrol 93: decrease of 100 cents per litre

Petrol 95: decrease of 100 cents per litre

Diesel 0.05% (wholesale): decrease of 101 cents per litre

Diesel 0.005% (wholesale): decrease of 92 cents per litre

Illuminating paraffin: decrease of 81 cents per litre

 

This is thanks to a much stronger rand and lower global oil prices relative to April, both of which contributed to the over-recovery.

The rand had a strong week last week which continues. But for how long? While there was some consolidation, the unit managed to retain its strength under R18.20 to the dollar in the past two weeks. 

Pre-Election Jitters?

According to analysts, a lot of this is owed to the unit shaking of pre-election jitters as markets start feeling more confident of no political shocks in the 2024 election results. Well, that remains to be seen. Oil prices, meanwhile, fell as metrics showed signs of a weaker market despite an uptick in geopolitical tensions before an OPEC+ meeting on supply.

Petrol prices in South Africa have increased by R3.00 per litre since the start of the year, adding pressure to households and keeping inflation stubbornly outside of the 4.5% target set by the South African Reserve Bank (SARB).

The country started the year with a petrol price cut in January, but then experienced four consecutive hikes from February through to May. If the price relief for June follows through—which is all but guaranteed this late in the month—this will break the trend, and the total 2024 hike should reduce to around R2.15 per litre.

Email Naresh: nmaharaj321@gmail.com