Big petrol and diesel price cuts expected

Petrol and diesel prices for June are expected to decline significantly, with petrol prices anticipated to decline by over R1 per litre and diesel by over R1.30 per litre. However, the longer-term outlook is markedly more negative.

This is according to mid-month data from the Central Energy Fund (CEF) and an analysis by the Automobile Association of South Africa (AA).

The CEF’s data indicates substantial declines in the cost of all fuel types:

• Petrol 93 – a decrease of R1.12/litre
• Petrol 95 – a decrease of R1.13/litre
• Diesel 0.05% – a decrease of R1.37/litre
• Diesel 0.005% – a decrease of R1.28/litre

However, these price decreases are not official as they do not account for potential changes to taxes and levies imposed by the Department of Mineral Resources and Energy.

Taxes and levies make up 31% of the retail fuel cost in South Africa. This means that the department’s determinations greatly impact the final cost.

Also, retail margins and costs for storing, transporting, and pumping the fuel make up a further 15% of the fuel cost.

The department factors these costs and the levies when the fuel price is adjusted on the first Wednesday of every month.

Thus, the AA expects the real price decreases for petrol only to be around R1 per litre and for diesel around R1.30 per litre.

The association also pointed to the rand’s weakening, which reduced the potential price decrease.

From 31 March to 25 April, the USD/ZAR exchange rate averaged R18.30. When the CEF compiled its data, the rand had weakened to R19.07 to the dollar.

The local currency has weakened further to R19.26/USD due to a persistently weak economy, increased load-shedding, and accusations from the United States that South Africa supplied Russia with weapons.

The oil price decreased from a peak of $83.26/barrel on 12 April to $72.30/barrel on 23 May, which is positive news for the petrol price.

Despite the rand’s weakness, the fuel outlook for June from the AA is positive, with significant reductions in all fuels likely.

According to the AA, this will positively impact the local economy by easing pressure on consumers and potentially reducing inflation, as fuel is a universal input in the economy.

The AA stressed that things would change before the official announcement, so the positive news must be taken cautiously.

Long-term outlook is negative

The longer-term outlook for fuel prices is markedly different from FNB Wealth and Investments’ senior economist Koketso Mano.

With the reopening of China’s economy and the normalisation of trade, Mano expects oil prices to trend higher for the remainder of 2023.

This upward pressure may be negated by a potential US recession later in the year. However, China’s economic performance will be the main driver of oil prices as they are the world’s largest importer.

The Organisation of the Petroleum Exporting Countries has also initiated supply cuts to ensure the oil price remains elevated despite recessionary fears.

The continued weakness of the rand will also push local fuel prices higher throughout 2023 as it is likely to become steadily more expensive to purchase, store, and transport oil in rand terms.

However, Mano does not expect the oil price to reach post-lockdown highs and thus expects the fuel price increases to be moderate.

Mano also urged caution as the global macroeconomic environment is highly volatile, making any futuristic prediction uncertain.