Big petrol price cut expected in South Africa

South African motorists are in store for more relief next month as global oil prices decline and the rand holds its ground against the dollar. 

According to the latest data from the Central Energy Fund (CEF), all grades of fuel are expected to decrease by over R1 a litre. 

The CEF tracks global oil prices and the rand-dollar exchange to calculate the anticipated price of diesel and petrol for the coming month. 

Its latest data indicates the below cuts to petrol and diesel prices for October –

• Petrol 93 – decrease of 118 cents per litre.
• Petrol 95 – decrease of 126 cents per litre.
• Diesel 0.05% – decrease of 109 cents per litre.
• Diesel 0.005% – decrease of 110- cents per litre.

These are only anticipated reductions, with any changes to the global oil prices and rand-dollar exchange rate likely to affect the official price for October. 

However, the signs are promising that the cuts may be even larger come next month as the oil price comes under increasing downward pressure and the US dollar weakens ahead of potential interest rate cuts. 

The price of a barrel of oil has dipped below $72, which is significantly lower than the peak of $91 per barrel seen in April. 

Oil has come under pressure largely due to an economic slowdown in the world’s largest importer – China.

Data from China at the end of last week showed that industrial output had been slowing for the longest consecutive month-over-month streak since 2021. 

Investment int he economy also fell more than expected, with the country’s economic growth goal of 5% for the year increasingly looking out of reach. 

Oil producers, under the umbrella of the Organisation for Petroleum Exporting Countries, have tried to mitigate this downward pressure on prices by cutting output. 

Even this has failed to stem the declines, with some countries in the organisation now looking to increase output to regain market share from the US. 

The worsening situation in China — along with an increase in global supply — have pushed Brent crude prices down by around 17% this quarter to near the lowest since late 2021.

The rand has also held its ground against the US dollar, with a weaker Chinese economy typically resulting in a weaker rand due to South Africa’s reliance on commodity exports for foreign exchange earnings. 

This resilience has largely been attributed to the formation of the Government of National Unity (GNU), which has boosted investor sentiment towards the country. 

Old Mutual Wealth investment strategist Izak Odendaal said the GNU has put South African assets in a fundamentally stronger position than they have been in the past. 

External events typically have significant impacts on local assets, particularly the rand, but this has not occurred in recent months as optimism over the country’s future offsets global events. 

However, local factors are not the only reason for the rand improving versus the dollar, with the greenback coming under pressure in the buildup to interest rate cuts from the Federal Reserve. 

The dollar has fallen to nearly its weakest level since January as investors increasingly bet on the Fed cutting rates by 50 basis points. 

Such a large cut will weaken the greenback as investors will be able to earn relatively higher risk-free returns outside of the US. 

The Federal Reserve’s Open Market Committee meets later this week, over the 17th and 18th of September. 

Interest rate cuts from the Reserve Bank may weaken the rand, in turn, but a smaller rate cut will strengthen the local currency versus the dollar.