Big petrol price cuts announced 

Significant cuts to the price of petrol and diesel are set to be implemented on Wednesday as the price of oil declined throughout August and the rand strengthened. 

Motorists are set for substantial relief after four consecutive months of declining fuel prices, bringing them down to levels last seen in 2023. 

The changes announced by the Department of Mineral Resources and Energy (DMRE) are outlined below –

• Petrol 93 – decrease of 92 cents per litre
• Petrol 95 – decrease of 92 cents per litre
• Diesel (0.05%) – decrease of 79 cents per litre 
• Diesel (0.005%) – decrease of 105 cents per litre

These cuts will bring 95 octane petrol to R22.19 a litre in Gauteng and R21.40 on the coast, while the Gauteng wholesale diesel price will be R19.59 a litre from Wednesday, and R18.80 on the coast. 

This comes after a month of expected relief for motorists, with the Central Energy Fund projecting major cuts. 

The price of fuel in South Africa is largely determined by the international price of oil and the strength of the rand, as nearly all petroleum products are imported. 

The average Brent Crude oil price decreased from $83.55 to $78.54 per barrel during August. The department said the main contributing factors are the increased production from major oil-producing countries despite lower demand concerns.

This led to lower contributions to the Basic Fuel Prices of petrol by 86 cents per litre and 78 cents, diesel by 94 cents and 68 cents.

An economic slowdown in China and fears of a US recession have spooked investors into thinking demand for oil will decline, dragging the price down. 

Data coming out of China has not been positive, with the country’s two-decade period of exceptional economic growth coming to an end. 

The world’s second-largest economy has tried to stimulate local demand by easing monetary policy and injecting cash into the local economy, but these measures have failed to reignite growth. 

Furthermore, the United States economy is not looking as strong as it once was, as revised employment figures indicate slow economic activity.

And so, over the past month, oil prices have remained relatively flat at $76 per barrel – significantly lower than the $85 level seen in mid-July. 

The DMRE uses average oil prices across the previous month to determine the prices of petrol and diesel for the coming month.

Oil prices that declined month-on-month in August have been coupled with a stronger rand as investors continue to be optimistic about South Africa’s future under the Government of National Unity (GNU). 

Expectations of a potential interest rate cut in the United States in August also supported the rand, although South Africa’s own move towards rate cuts has slightly offset this advantage.

This is because local rate cuts could prevent a widening interest rate gap between South Africa and the United States.

Despite this, the rand strengthened from around R18.49 during early August to approximately R17.88 by the end of the month.

In calculating fuel prices, the department uses the average exchange rate throughout the month. On this metric, the rand strengthened markedly from an average of R18.23/$ over the past month to R18.05.

This led to lower contributions to the Basic Fuel Prices of all products by over 10 cents per litre across all grades of fuel.

However, weak economic data from China will negatively impact the local currency in the coming months and over the long term. 

This is because China is the largest importer of South African goods, particularly minerals, and thus a vital source of foreign exchange earnings for the country.