Big petrol price cuts expected for South Africa next month

South African motorists are set for significant relief at the pumps next week, with petrol and diesel prices expected to come down by over R1 per litre next month.

Lower global oil demand has put downward pressure on prices in recent months, while a stronger rand has made importing petroleum products cheaper. 

The next round of petrol price cuts, following four consecutive months of cuts, will be implemented on Wednesday next week. 

The Central Energy Fund tracks the price of oil and the value of the rand versus the dollar to forecast fuel prices in South Africa to forecast fuel prices in South Africa. 

Its data shows there will be significant cuts to all grades of fuel next week, which are outlined below –

• Petrol 93 – decrease of 110 cents per litre
• Petrol 95 – decrease of 118 cents per litre
• Diesel 0.05% – decrease of 112 cents per litre
• Diesel 0.005% – decrease of 111 cents per litre 

These changes may be different next week as the global price of oil fluctuates, and the rand can strengthen or weaken. 

However, South Africans are almost guaranteed to see the price of fuel decline next month, with the only question being by how much.

The price of oil has risen in the past week as Chinese demand is expected to pick up with the government injecting stimulus into its economy. 

China is expected to loosen monetary policy further as the world’s second-largest economy tries to reach its GDP growth target of 5%. 

A 50 basis points cut by the US Federal Reserve is also expected to pick up demand in the world’s largest economy. 

Furthermore, fears of a regional war in the Middle East have risen, with such a conflict potentially disrupting supply from the world’s largest producers. 

Brent crude prices rose 4% last week, trading near $75 per barrel. Potential supply disruptions could raise the price significantly as the Organisation for Petroleum Exporting Countries (OPEC) maintains its supply caps. 

The rand’s strength may be enough to offset these increases in future as optimism surrounding the Government of National Unity (GNU) continues. 

Since its formation, the rand has strengthened by 5.8% versus the dollar, significantly decreasing the cost of importing goods. 

Economists also expect the currency to finish the year strong, albeit not at current levels, as some of the optimism will fade. 

The only way the rand will sustainably continue strengthening versus the dollar is if the South African economy begins to grow much faster.

Typically, the rand weakens by around 5% against the dollar over a year, with the past few months proving the exception. 

Reforms that offer hope include stabilising the energy supply, fiscal reform and discipline, greater government efforts to collaborate with the private sector, and an apparent surge in investment. 

“These developments could mark the beginning of a sustained period of growth for South Africa,” director at Citadel Global Bianca Botes said.   

“If the GNU can maintain cohesion and implement necessary reforms, the country could see a significant improvement in its economic performance over the coming years.” 

“This would not only enhance the standard of living for South Africans but also position the country as a more attractive destination for foreign investment.” 

“The coming months will be crucial in determining whether this positive momentum can be sustained and translated into long-term prosperity for the nation.”

“In the longer term, the rand will, however, take its cues from global events, specifically the dollar performance and announcements by the US Federal Reserve,” Botes said. 

It is important to note that the rand’s relative strength cannot be attributed only to South African factors. 

A major driver of the rand’s performance is the broader risk-on sentiment from investors as the US Fed cuts rates. 

The rand is seen as indicative of global risk sentiment, benefitting immensely when investors are willing to take on more risk for higher returns. 

“From a more holistic perspective, you need a risk on the environment and rising commodity prices for EM currencies – and especially those which are commodity driven such as the rand – to benefit,” Botes said.