Good news about petrol price cuts in South Africa

Subdued oil prices in August spell good news for South Africa’s petrol prices, with significant cuts expected in September. This will help to reduce the country’s inflation rate.

Investec chief economist Annabel Bishop said oil prices have been subdued this month. The Brent crude oil price dropped to R1,436/litre from R1,531.7/bbl, below June’s R1,538/bbl, with a fuel price cut building for September. 

Bishop explained that the weak global economic environment had suppressed prices, although a small climb was recently seen as better than expected July US retail data.

A 66c/litre petrol price cut is expected for South Africa at the start of next month. This came after three cuts already having occurred from June, totalling a reduction of R2.38/litre.

For the diesel price, there have been five cuts, totalling a reduction of R2.11/litre.

However, for the year to date, the fuel price has remained relatively unchanged, with only a 14 cents/litre reduction.

She said this is one reason South Africa’s CPI inflation rate has been slow to decrease this year.  

The country’s CPI inflation rate started the year at 5.3%, then jumped up in February to 5.6% before returning to 5.3%, as the petrol price climbed by R3.00/litre from February to May. In June, CPI inflation had slipped to 5.1% y/y.

With petrol prices cut each month since June so far this year, CPI is expected to drop lower, to under 5.0% in July and then closer to 4.5% over the rest of 2024’s third quarter Q3.24.

Mid-month data from the Central Energy Fund (CEF) suggests that South Africans will see another sizeable petrol and diesel price cut in September.

The data from the CEF shows that petrol prices are slated for a cut of around 65 cents per litre, while diesel prices are on track for a cut of between 53 to 77 cents per litre.

Should market conditions persist until the end of the month, this would be the fifth month of fuel price cuts, which would put the year-to-date adjustments in positive territory for motorists.

These are the expected changes:

• Petrol 93: decrease of 62 cents per litre
• Petrol 95: decrease of 67 cents per litre
• Diesel 0.05% (wholesale): decrease of 53 cents per litre
• Diesel 0.005% (wholesale): decrease of 77 cents per litre

Bishop said that while tensions in the Middle East have been exacerbated, the oil price has not been substantially affected.

Bishop warned that worsening tensions in the Middle East remain a substantial risk. She said much will depend on international oil prices and the rand for South Africa’s inflation rate outcomes in this last quarter of the year. 

With little to no fuel price changes in the fourth quarter and a stable rand, the CPI inflation rate could run between 4.0% and 4.5% in the last quarter of 2024.

On 16 August, the rand was trading below R18.00/USD, as the US retail data allayed some fears about US economic weakness.

The rand was also boosted by market anticipation of a rapid US interest rate cut cycle beginning in September, which could also aid with lower fuel prices.  

The Organisation of the Petroleum Exporting Countries and its allied producers had cut its forecasts for oil demand based on lower consumption in the first half of the year and “softening expectations for China’s oil demand growth in 2024”.

Total world oil demand is expected to increase, just at a lower rate than expected, “bolstered by strong air travel demand and road mobility, including trucking, as well as healthy industrial, construction and agricultural activities in non-OECD countries.” 

However, she said the global growth forecast is subject to many uncertainties, including global economic developments. 

For now, OECD Europe and Asia Pacific are projected to show a contraction in oil demand.

The US Energy Information Administration has also said that global oil demand increased in the second quarter of this year, with a contraction in China limiting gains. 

It said demand is set to rise by less in both 2024 and 2025 as comparatively lacklustre macroeconomic drivers come to the fore.

This is because markets continue to worry about weak global growth. Demand has been subduing the oil price overall, and this sentiment has been outweighing concerns over the escalation in tensions in the Middle East.

Notably, S&P Enterprises has warned that tensions in the Middle East have taken a definitive turn for the worse. 

“However, tanker freight rates for dirty and clean oil markets remain largely unaffected,” it said. “Dirty tankers are defined as those carrying crude, fuel oil or other ‘dirty’ products such as vacuum gas oil or dirty condensate.” 

“Clean tankers carry light ends such as gasoline, middle distillates or naphtha.”

It said part of the reason for the muted response to heightened tensions in the region is that so much freight traffic has already been redirected away from the Suez Canal, with Iran seen as having little to no strategic gain by attacking oil infrastructure. 

Around 60% of tankers from Europe to locations east of Suez have opted to sail the longer Cape of Good Hope route to avoid the Red Sea due to Houthi attacks on shipping lanes, keeping tanker freight rates stable.