Good news about petrol and diesel prices in South Africa

South Africans can expect some relief from high petrol and diesel prices in the second half of 2024 as global demand for oil is expected to decline due to interest rates being higher for longer and constrained global growth. 

This is feedback from investment analyst at FNB Wealth and Investments, Sithembile Bopela, and senior economist Koketso Mano. 

The price of petrol and diesel in South Africa has risen steadily throughout 2024. Petrol prices rose in May, while diesel saw a slight decrease. 

The price of Brent Crude oil, the main determinant of international petroleum product prices, rose from US$86.09/barrel on 27 March to US$89.01/barrel by 29 April.

This resulted in an under-recovery in petrol costs of 34c/litre and an over-recovery in diesel of 33-39c/litre, depending on the grade.

Simultaneously, the rand weakened against the US Dollar during the period under review.

According to these elements, fuel prices in South Africa this Wednesday are being adjusted to the following prices –

Fuel typeGautengCoastal
Petrol 93R25.25R25.25
Petrol 95R25.49R24.70
Diesel 0.05%R22.15R21.36
Diesel 0.005%R22.24R21.48

The drop in diesel prices can be attributed to waning demand globally. Diesel is primarily used for machinery and home heating, while petrol is the preferred fuel for powering cars.

With the Northern Hemisphere approaching summer months, there is generally a slowdown in economic activity as people enjoy the warm weather and a reduced need for home heating.

This change in season has the opposite effect on petrol prices as demand tends to increase as people in the northern hemisphere drive their cars more often. 

However, Bopela and Mano expect this effect to be minimal and the overall demand for petrol and diesel to decline, resulting in lower fuel prices. 

They acknowledged that the price of Brent crude remains elevated from its starting position of $75 a barrel at the beginning of the year. 

However, global economic growth constraints, hawkish sentiments from the US Federal Reserve, and a large regional crude inventory build will cap further upside to oil prices.

The oil market is expected to be finely balanced this year. As global growth troughs, OPEC+ output restraint is required to counter growing non-OPEC supply from the Americas. 

Even as global growth forecasts have ticked higher, the risk of tighter monetary policy could further stifle demand. 

Furthermore, heightened geopolitical tensions have upheld the risk that supply conditions could become adverse, as recently witnessed in the Middle East. 

Fortunately, Israel and Iran showed restraint in their recent conflict, and the push towards peace talks could further ease fears of conflagration. This would continue to reduce the risk premium that has supported higher oil prices.

The rand, on the other hand, should continue to experience near-term pressure from a hawkish Fed, and leading up to the national elections. 

Once the risk associated with the elections potentially subsides and we get a Fed rate cut, the rand is likely to recover from what we estimate to be a harshly undervalued position. 

This would support slower fuel inflation, broader cost pressures, and, inevitably, interest rates. 

Bopela and Mano said they still look forward to some consumer relief in the second half of this year, but the situation remains precarious.