Petrol price pain in store for South Africans

Most South African motorists are facing financial pain as the petrol price is set to rise again in May. One consolation is that the price of diesel could decline.

Data from the Central Energy Fund (CEF) shows petrol prices may rise by almost 36 cents per litre in May, while the diesel price might fall.

As was the case for April, petrol prices are currently showing an under-recovery of around 30 cents per litre, lining up for a fourth consecutive price hike next month.

Diesel, meanwhile, is showing the opposite – an over-recovery of around 30 to 36 cents per litre – pointing to a price cut.

The CEF expects the following changes to fuel prices in May –

• Petrol 95 – increase of 35.83 cents 
• Petrol 93 – increase of 34.47 cents 
• Diesel 0.05% – decrease of 30.34 cents 
• Diesel 0.005% – decrease of 36.81 cents 

The reason for the disparity comes down to the movement in international product prices, which negatively affected the petrol price by between 32 and 33 cents while buoying the diesel price by roughly the same.

The oil price saw strong growth this month, as worries over the increase in Middle East tensions and related supply constraints have strengthened oil prices, along with an expected lift in demand. 

The South African Reserve Bank recently said, “Fuel prices look set to continue shaping global inflation outcomes” as oil markets are tight and core inflation is sticky. 

The weak rand had a negative effect on both petrol and diesel prices, as the currency faced a difficult month and weakened significantly against the US dollar in April.

Investec predicts in its severe down-case scenario for South Africa that the rand could reach R21.40 to the US dollar in 2024.

Investec chief economist Annabel Bishop said the rand has been under pressure due to several factors weighing on the currency. These include –

• A strong US economy – Positive data on US retail sales, housing, industrial production, and manufacturing pointed to a resilient US economy.
• Inflation concerns – Sticky inflation in the US means the Federal Reserve is less likely to cut rates soon. The International Monetary Fund also warned about persistently high global inflation.
• Delayed rate cuts – The market now expects the first US rate cut in Q4 2024, with a possibility of no cut this year. Historically, the rand strengthens during US rate cut cycles, so the delay weakens the rand.

Another factor weighing on the rand is the ongoing conflict in the Middle East, which could further complicate things by raising oil prices and inflation.

The rand hit a month-long high of R19.37 against the US dollar on Friday, 19 April, due to geopolitical tensions following an alleged Israeli drone strike on Iran.

TreasuryONE currency strategist Andre Cilliers said this alleged strike triggered global financial volatility and led to significant movements in key economic indicators like oil, gold and the US dollar.

In addition, domestically, political uncertainty ahead of South Africa’s 29 May elections is keeping investors cautious, Bishop added.