South African motorists should prepare for a petrol price hike next week as the October fuel price recovery remains stagnant. New data from the Central Energy Fund (CEF) indicates a steady deterioration in fuel prices for November, signaling an increase in both petrol and diesel costs, estimated to be around 20 cents per litre. Petrol prices have shown significant under-recoveries, fluctuating between 18 and 30 cents per litre, while diesel sits with an under-recovery of between 22 and 23 cents per litre. This projection sharply contrasts the initial outlook at the start of October, when an over-recovery seemed possible.
Expected Petrol Price Adjustments
- Petrol 93: Expected increase of 18 cents per litre
- Petrol 95: Expected increase of 30 cents per litre
- Diesel 0.05% (wholesale): Expected increase of 23 cents per litre
- Diesel 0.005% (wholesale): Expected increase of 22 cents per litre
- Illuminating Paraffin: Expected increase of 20 cents per litre
The ongoing under-recovery primarily stems from a rise in global oil prices. Although Brent crude’s spot price recently dipped to around $73 per barrel after peaking mid-October, it still remains significantly higher on average than it was in September. This elevated pricing, largely influenced by geopolitical tensions and major economic shifts, directly affects the cost of fuel imports, which South Africa heavily relies on.
Contributing to the under-recovery is the weakening rand, which, after an initially strong start to October, depreciated to over R17.60 against the US dollar. This currency fluctuation undermines any potential cost relief for South African consumers. October’s decline in the rand can be attributed to a strengthening dollar and a cautious global economic sentiment, particularly as the United States approaches its presidential election.
According to Investec’s chief economist, Annabel Bishop, the close race between US presidential candidates has added to market uncertainty, with fluctuating poll results further elevating global risk aversion. Bianca Botes, Citadel Global’s economic strategist, notes that the rand has been pressured by external concerns about China’s economy and domestic political dynamics, keeping the currency on edge as multiple risk factors unfold.
Global Oil Market Pressures
The global oil market remains turbulent, with significant influence from two primary forces: the Middle Eastern geopolitical landscape and China’s economic performance. Early in October, an Iranian missile strike on Israel added a “war premium” to oil prices as Iran warned of further retaliatory action. Although Israel responded by striking military targets in Iran, the restrained nature of the attack, which avoided oil and nuclear facilities, led to a marginal easing in oil prices as fears of prolonged escalation decreased. Nevertheless, the Middle Eastern situation remains unpredictable, with potential repercussions for oil prices if hostilities resume.
In addition to these geopolitical tensions, China’s economic challenges also loom over the oil market. While China’s slowing economy could eventually reduce demand for oil, thus lowering prices, the effects of this downturn may not impact global oil prices in time to mitigate the looming fuel increase for South African consumers in November.
The combined impact of higher global oil prices and the depreciating rand suggests a fuel price hike is now virtually certain. Although the exact increase may fluctuate in the coming days, the prevailing trends point toward an inevitable price rise next week. This development means that South African motorists are likely to face higher fuel costs going into November, driven by complex international economic and political factors as well as local currency instability.
Related article: Expected Petrol Price Hike for November 2024
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