Bad news about petrol prices in November

The price of petrol and diesel is set to rise next month as elevated tensions in the Middle East put upward pressure on oil prices, and a stronger dollar makes it more expensive to import. 

This would mark an end to five consecutive months of petrol price cuts for South African motorists and may result in inflation picking up. 

However, it is unlikely to affect interest rates as the Reserve Bank will look to see if a rise in fuel prices has second-round effects on the rest of the economy 

According to data from the Central Energy Fund, the expected changes to the price of petrol and diesel are shown below. 

• Petrol 93 – increase of 11 cents per litre
• Petrol 95 – increase of 23 cents per litre
• Diesel 0.05% – increase of 18 cents per litre
• Diesel 0.005% – increase of 17 cents per litre

While the initial turn for fuel prices after a run of cuts has come from a rising oil price, in the past week, it has been a stronger dollar pushing prices up in South Africa for November. 

Oil prices fell sharply towards the end of last week, posting their largest weekly decline in more than a year, as the US pushed for an end to the conflict in the Middle East.

Israel, according to the Wall Street Journal and Washington Post, also reportedly gave assurances to the US that it would not target Iran’s nuclear and oil facilities in a retaliatory strike. 

However, it is still unclear how big Israel’s retaliation to a barrage of missiles from Iran at the beginning of the month would be. 

Before Iran’s missile attack on Israel, the price of oil was trending lower as subdued demand from a slowing Chinese economy pushed prices down. 

There has also been talk of the Organisation for Petroleum Exporting Countries (OPEC) unwinding its production caps to maintain its market share. 

Crucially, Saudi Arabia appears to be in favour of this as its market share comes under pressure from US production. 

If Iran’s oil facilities are struck, it would significantly impact oil supply and push prices higher. The country exports over one million barrels per day, mostly to China. 

This could be covered if OPEC unwinds its production caps to maintain price stability, which is its stated aim. However, Iran can limit oil exports from other countries in the region by blocking the vital Strait of Hormuz. 

Oil prices have retreated to $73 per barrel, flat since the beginning of the month. 

However, increased geopolitical tension is a double blow for South Africa as it results in investors flocking to dollar-based investments as a relatively safe haven. 

This strengthens the dollar versus other currencies, particularly volatile emerging market currencies like the rand. 

As a result, over the past month, the dollar strengthened against the rand by just over 1%, which is relatively modest given the rand’s reputation for wild swings. 

This makes the importing of oil more expensive for South Africa and subsequently pushes up the price of fuel at the pump. 

A weaker rand and rising fuel prices may reignite inflation, but the modest increases above are not likely to push the Reserve Bank out of its interest rate-cutting cycle.