Big petrol price cuts for South African motorists next week

South African motorists will experience big relief at the pump next week, with petrol prices dropping by around R1 per litre and diesel by between 24 cents and 30 cents per litre. 

This is according to data from the Central Energy Fund (CEF), which tracks the global price of oil and exchange rate fluctuations throughout the month to project the fuel price. 

In June, the rand has strengthened slightly compared to the average for May due to optimism surrounding the formation of a Government of National Unity (GNU). 

South African assets have rallied in recent weeks, with investors pumping money into the country and boosting the value of its currency. 

However, this has stalled in recent days as uncertainty has gripped markets following news that the GNU is struggling to agree on the composition of its cabinet. 

This has resulted in lower petrol and diesel price cuts for July than expected at the beginning of the month. 

Global oil prices have also declined due to subdued demand in developed economies, as economic growth is slowed by high interest rates. 

The oil price remains volatile, with changes likely to occur before next week’s announcement of the official fuel price. 

US banks, including Goldman Sachs, expect global oil consumption to run ahead of supply, pulling stockpiles lower and supporting prices. 

This may result in a slightly smaller cut to petrol and diesel prices at the beginning of July and potentially higher prices throughout the year. 

The expected cuts to petrol and diesel prices are listed below –

• Petrol 93: decrease of R1.05 per litre
• Petrol 95: decrease of 99 cents per litre
• Diesel 0.05% (wholesale): decrease of 30 cents per litre
• Diesel 0.005% (wholesale): decrease of 24 cents per litre

These decreases are unlikely to last long. Goldman Sachs expects global oil consumption to increase in the second half of the year, with China and India driving growth. 

Furthermore, data coming out of the world’s largest oil consumer, the USA, indicates that consumption of products like gasoline, diesel, and jet fuel is increasing. 

Good news for inflation

Motorists experienced a significant cut in prices at the beginning of this month, coming down sharply across all grades of fuel. 

Petrol prices came down by R1.24 per litre and between R1.09 and R1.19 per litre for diesel.

This was largely due to the strong performance of the rand, which resulted from financial markets reacting positively to a coalition between the ANC and the DA. 

With over 85% of all goods in South Africa being transported via road at some point, the decline in fuel prices over the past two months will translate into lower headline inflation. 

Transport inflation tracked by Stats SA rose to 6.3% in May, the highest rate for the category since 7.4% in October last year. 

The organisation said fuel was the major culprit, with petrol and diesel prices increasing on average by 9.3% on a one-year basis and by 0.6% since April.

While petrol price increases have kept overall inflation high, inflation in other consumer goods has eased substantially.

Over the past few months, the weighted average inflation for consumer goods such as clothing, footwear, furniture, appliances, and vehicles declined from 4.2% to 3.5%.

Contrary to intuition, Old Mutual chief economist Johann Els said that elevated petrol prices, having risen over 50% in the past two years, have a deflationary effect. 

Higher petrol prices limit consumers’ disposable income, reducing their spending on other goods and reducing upward pressure on the prices of those goods. 

Els said the Reserve Bank has likely already considered cutting interest rates, but this was delayed by the country’s elections and potential volatility in financial markets. 

Successive petrol price cuts in June and July will further add to the downward pressure on inflation and interest rates.