A Glimmer of Hope for South African Petrol Prices – But There’s a Catch
November has kicked off with market turbulence, sending South African fuel prices into under-recovery. However, recent data from the Central Energy Fund (CEF), as of 7 November, shows a small but positive turn for petrol price recoveries since the start of the month.
While a volatile rand, impacted by the U.S. presidential election, initially pointed to under-recoveries of up to 16 cents per litre, markets have shifted. Petrol 93 has seen a notable swing, moving from a 10 cents per litre under-recovery to a 5 cents over-recovery, signalling the significant impact of global oil price fluctuations and rand strength.
This positive movement extends across fuel types, with an average gain of around 12 cents per litre. The stronger rand, bouncing back after an initial dip against the dollar post-election, has supported these small gains. Key influences include the U.S. Federal Reserve’s recent 25-basis-point rate cut, which has softened the dollar and given the rand some relief.
According to economists at Nedbank, certain U.S. policies under the new administration are expected to increase inflation, potentially slowing down the Fed’s rate-cutting cycle. Although this may weigh on emerging markets like South Africa, it’s not expected to drastically impact the country’s rate outlook in the near term.
Oil prices remain another critical factor. Currently, the oil market is influenced by factors like the subsiding threat from Hurricane Rafael, which disrupted U.S. oil production, and anticipated changes from the Trump administration, potentially affecting Iran and Venezuela’s oil exports. There’s also weaker demand from China, which recently reported a 9% drop in crude imports for October, marking the sixth consecutive monthly decline. Rising U.S. crude inventories have added further pressure, making the oil market highly uncertain.
The Catch
As always, fuel pricing is susceptible to rapid changes, and volatility is expected to persist. Joseph Dahrieh, Managing Principal at Tickmill, points out that multiple global factors, from weather events to international policies, are shaping the oil market. The outlook remains precariously balanced, with any shift in factors potentially altering fuel prices.
A big concern remains with diesel prices, still facing an under-recovery of approximately 50 cents per litre. For diesel prices to stabilize, a more significant recovery in global oil prices would be needed.
While these slight improvements are encouraging, fuel prices are influenced by numerous global variables that can change quickly. A clearer picture will emerge with the mid-month data, providing a more definitive forecast for December’s prices.