SA fuel prices will benefit from a shock slump in the oil price, with Brent crude oil falling to four-year lows.(Coffeekai/ Getty Images)
Despite a big decline in the rand, diesel and petrol prices are still on track for small cuts in the first week of May.
South African fuel prices are largely determined by international oil costs and the rand exchange rate, as oil is priced in dollars.
Rand versus petrol and diesel prices. Rand weakness pushes up fuel costs. Source: IMF
Earlier this week, the rand hit a record weak level as investors fled riskier assets amid the turmoil of global trade war. The local currency has also been under pressure amid fears that the DA will exit the business-friendly government of national unity (GNU).
On Friday, the rand was trading around R19.32/$ after almost reaching R19.90 on Wednesday. A week ago, the currency was trading below R19.
But the latest estimate from the Central Energy Fund shows that the price of 95 unleaded petrol is due for a cut of almost 14c a litre, while the wholesale price of diesel could be lowered by between 35c and 36c a litre. Final prices will only be fixed at the end of April.
This is thanks to a shock slump in the oil price, with Brent crude oil falling to four-year lows. Earlier this week, it fell below $60 from around $90 a year ago.
Oil prices are under pressure as the risk of global recessions will weigh on fuel demand, but a shock OPEC+ decision to raise production has also contributed.
Brent oil price ($/barrel). Sources: S&P Global, Investec
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“The net effect of the fall in the Brent crude oil price, together with the rand’s recent sharp weakness, has only resulted so far in a small petrol price change building over this month to date for the start of May,” says Annabel Bishop, chief economist of Investec.
“Consequently, the inflation effect for South Africa will be negligible from this source, while in April global food prices fell to date by a very substantial -5.2% month-on-month, counteracting a lot of the rand’s 4.3% month-on-month deprecation over the same period.”
Bishop notes that owing to the US’s sharp pull back from its first salvo of sweeping trade tariffs – to a flat 10% tariff on most countries – some stability has returned.
“This does not mean that markets are not substantially weaker than they were before early April, and the rand has not recovered, but a continued wind-back of US trade aggression over the next several weeks would see further recovery.”
However, this will depend on the domestic political situation in South Africa.
“The risks to the DA in the GNU are a risk to market sentiment,” says Bishop.
Fuel prices will be adjusted on the first Wednesday of May.
The price of 95 unleaded petrol was lowered by more than 70c at the start of April. At R21.62 a litre in Gauteng, it is now R3.50 a litre cheaper than a year ago.
Wholesale diesel prices were cut by more than 83c. The Gauteng wholesale price was lowered to R19.32 a litre, from R22.45 a year ago.
