Warning for diesel prices in South Africa
South Africans have just suffered another significant hike in fuel prices this week, marking the third consecutive increase for petrol and the fourth for diesel – but early data from the Central Energy Fund shows that the pain for the latter might not be over yet.
The CEF’s daily snapshot for the start of October shows that, while petrol prices are lined up for a possible cut in November, diesel prices are again on the back foot, with another hike on the cards.
Petrol is currently showing an over-recovery – thus pointing to a cut – of around R1.25 a litre. If sustained for the rest of the month, this would provide some relief to petrol users who have had to bear cumulative hikes of R3.22 per litre since August.
The story for diesel is not as bright, however. The fuel is currently showing an under-recovery of 60 to 70 cents per litre. Diesel has seen cumulative hikes of R5.71 since July.
With prices having just gone up on Wednesday (4 October), it’s still too early in the month to make a definitive call on where fuel prices will head next – but the early indications give a good basis on which to measure the economic movements in the weeks to come.
Specifically, with oil prices having come down from highs around $95 a barrel at the end of September to around $85 at present, any significant fluctuations in the weeks to come will indicate how local fuel prices will be impacted.
The same goes for the second component in determining local pricing – the rand. The local unit is currently stuck above R19 to the dollar; a generally weak position.
While there are warnings that the currency could deteriorate over the longer term, in the near term, economists expect a relatively stable environment until the end of the year.
This is also reflected in the under/over recoveries associated with the exchange rate. The weaker rand is currently contributing to an under-recovery of 6 cents per litre, which is not a significant impact relative to the oil price. If the rand stays fairly stable for the rest of the month, it shouldn’t factor in too deeply.
Thus, all eyes should be on global oil movements when setting expectations for November’s fuel prices.
According to analysis from Bloomberg, oil has held its sharp decline due to concerns that a slowdown in global growth will erode away consumption.
Oil prices have dropped due to stock supplies rising amid declines in demand.
“After rallying strongly in the third quarter, crude’s upsurge has faltered. While the gains had fueled speculation that a return to $100 oil was on the cards, others remained sceptical, with notable bear Citigroup Inc. making the case that prices were on course to reverse as the market returned to a surplus,” it said.
“Oil’s sharp retreat has come against a backdrop of rising worries about elevated interest rates and the global economy that has rattled equity and bond markets in recent weeks.”
According to Bloomberg, if this is sustained, it will help to cool inflationary pressures, globally.
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