Good news about petrol prices in South Africa

Petrol and diesel prices are set to rise in November as geopolitical tensions push oil prices higher and provide support to the dollar. 

This would end five consecutive months of price cuts for South African motorists and potentially push inflation higher in the coming months. 

However, the price rise is expected to be short-lived as global demand for oil remains under pressure and supply caps are set to be removed.

In addition, Israel’s limited retaliation to Iran, which avoided any oil facilities, has resulted in the price of oil plunging on Monday morning.

The latest data from the Central Energy Fund, which tracks the price of oil and the rand-dollar exchange rate, indicates that the November increases are set to be relatively small. The expected changes are outlined below. 

• Petrol 93 – increase of 17 cents per litre
• Petrol 95 – increase of 29 cents per litre
• Diesel 0.05% – increase of 22 cents per litre
• Diesel 0.005% – increase of 21 cents per litre

The good news is that these increases are expected to be a temporary blip on an otherwise steady downward trend. 

Oil demand from the world’s two largest consumers, the US and China, is expected to be subdued in the coming months. 

The Chinese economy, in particular, has come under pressure, with recent stimulus unlikely to ensure it meets its GDP growth forecast of 5% for the year. 

As the world’s largest importer of fuel, the slowdown of the Chinese economy is set to put immense downward pressure on oil prices. 

Declining demand for oil is set to be coupled with increasing supply as the Organisation for Petroleum Exporting Countries (OPEC) unwinds supply caps. 

OPEC member states are concerned that continued production cuts will result in them losing market share to US producers and are unlikely to ensure market stability. 

Furthermore, many of these countries rely on oil export revenue to balance their budgets, and continued supply cuts may put them under financial pressure. 

Crucially, Saudi Arabia has signalled its support for removing supply caps in December. OPEC meets at the beginning of December to discuss its output for 2025.  

If OPEC unwinds its production cuts completely, over one million barrels of oil per day will reenter the market. With demand expected to remain under pressure, prices will trend downwards. 

In the more immediate future, Israel’s retaliatory strike on Iran was limited in its scope and did not target any of the country’s oil facilities. 

As a result, oil slumped by 4.5% in trading at 08:00 Monday morning. This may result in prices of petrol and diesel actually coming down by the time the official prices are announced for November. 

Major American investment banks have cut their forecasts for Brent Crude prices on the news, noting that there are minimal risks to oil supply.

One threat to this is the continued strength of the dollar, elevated geopolitical tension and an intense run-up to the US election on 5 November supports the greenback. 

In times of global uncertainty, investors turn to the dollar and US-based assets as a relative ‘safe haven’. 

Emerging market assets and currencies, such as the rand, tend to be on the other side of this equation, with investors preferring safety over potentially higher returns. 

However, since the formation of the Government of National Unity (GNU), the rand and South African assets have been in a much stronger position than in previous years. 

The rand has also been strengthened by an aggressive start to the US Federal Reserve’s cutting cycle, making local assets relatively more attractive. 

The graph below, courtesy of the CEF, shows the basic fuel price, which closely tracks the price of oil in rands.