Big swing for petrol prices in South Africa

South African motorists are set for significant relief at the pumps in July, with early projections indicating substantial cuts to both petrol and diesel. 

This will be the first cut for petrol prices since the conflict in the Middle East began at the end of February, and the second successive cut for diesel prices. 

Petrol prices are currently at a record high in South Africa, with a litre of 93-octane petrol costing motorists R27.95 in the country’s inland provinces. 

Since the middle of May, global oil prices have plunged as the United States and Iran appear to be edging close to a deal to end the conflict. 

There has also been a significant reduction in oil imports from the largest consumer, China. This has been coupled with increased output from producers outside of the Middle East. 

This has combined to put downward pressure on oil prices, which still remain around 50% higher than they were pre-conflict. 

South Africa’s Central Energy Fund tracks the international price of oil and the rand-dollar exchange rate to project changes to fuel prices for the coming month. 

Its latest data indicates the following changes for July – 

• Petrol 93 – decrease of 256 cents per litre
• Petrol 95 – decrease of 255 cents per litre
• Diesel 0.05% – decrease of 442 cents per litre
• Diesel 0.005% – decrease of 468 cents per litre

These changes are premised on the average oil price and the rand-dollar exchange rate holding for the rest of the month. Thus, they are likely to fluctuate before the official prices are announced for July. 

The cut for petrol and diesel will also be smaller than the projections indicate at the end of the month as the National Treasury completes the reimposition of the General Fuel Levy (GFL). 

In June, R1.50 of the GFL was added back to fuel prices, undoing a potential cut to petrol prices. In July, the full R3 GFL will be applied, slashing R1.50 off the projected cuts. 

The oil price is also unlikely to fall further, with it rising slightly amid renewed hostilities between the United States and Iran. 

However, the market expects these hostilities to be short-lived and talks for the Strait of Hormuz to reopen to yield results soon. 

Bloomberg reported that oil has erased earlier increases as concerns over the hostilities were offset by signs of rising oil flows through the Strait of Hormuz. 

While much focus has been on the Strait, traders are also increasingly factoring in sustained declines in demand from China, the world’s largest importer and consumer of oil. 

Chinese imports have fallen to their lowest level in eight years, while around 100 million barrels have crossed the Strait over the past month. 

Oil prices have plunged nearly 10% in the past month on the basis of renewed flows from the Middle East and suppressed demand. 

There is a significant risk of renewed strikes from the United States on Iran, with no concrete peace deal being signed as yet. 

Meanwhile, the rand has held its own against the US dollar, weakening marginally over the past month. 

The local currency has been boosted by positive news surrounding South Africa’s finances, with Fitch upgrading the country’s credit rating for the first time in 21 years. 

The National Treasury also reported a wider primary budget surplus for the past financial year, with it saying that debt has now stabilised as a share of GDP.