Big turn for petrol prices next month

Petrol and diesel prices have fluctuated substantially so far this month as the US election has introduced extreme volatility into financial markets. 

At the beginning of November, petrol and diesel prices were expected to rise significantly on the back of higher oil prices and a stronger dollar. 

However, in recent days, apart from a momentary rally in the oil price and a stronger dollar on the back of Donald Trump winning the US election, prices have moderated. 

Following election day on Tuesday, the rand weakened to R17.81 as the dollar strengthened against emerging market currencies as the financial markets digested Trump’s victory. 

On Thursday, the rand rallied and is trading at R17.36 to the dollar on Friday morning. Oil prices have risen 1.43% this week, tracking gains in the US equity markets, but have moderated on Friday. 

The Central Energy Fund (CEF) tracks movements in the price of oil and the USD-ZAR exchange rate to project the price of fuel for the next month. 

Its calculations expect the following changes in December –

• Petrol 93 – a decrease of 0.4 cents per litre 
• Petrol 95 – an increase of 8.6 cents per litre
• Diesel 0.05% – an increase of 54 cents per litre
• Diesel 0.005% – an increase of 52 cents per litre

The outlook for fuel prices in South Africa may improve throughout November as oil demand continues to decline and the rand proves resilient. 

American bank Citi said in a research note that a Trump presidency may actually result in oil prices declining as his administration is set to boost production and impose tariffs on China’s economy.

Traders may be betting on a lower oil price over the next few years, further putting downward pressure on the commodity’s price. 

The US, China, and India drive global oil consumption, and any slowdown in their economies pushes the price of oil down as traders expect lower demand.  

The US requires significant oil for transportation and industrial activities while growing economies in China and India increase demand through rising industrial and consumer needs. 

The European Union also consumes heavily but is increasingly shifting toward renewables.

Both the US and Chinese economies are showing signs of slowing down, with the world’s second-largest economy yet to shake off its pandemic-era slump.

China is likely to miss its GDP target of 5% for the year despite its government’s stimulus efforts. 

Furthermore, the conflict in the Middle East appears to have quietened down after Israel showed restraint in its counter-strike on Iran. 

More importantly for oil prices, the Organisation for Petroleum Exporting Countries is set to review its production cuts when it meets in early December. 

Its largest member, Saudi Arabia, has signalled its intent to remove production caps to maintain its market share. 

The unwinding of these production cuts will greatly boost supply to the market and, when coupled with declining demand, will push prices lower. 

South Africa’s rand has also proven more resilient than expected, with it bouncing back from its initial declines versus the dollar in November. 

Citadel Global executive director Bianca Botes said the initial effect of the US election has been notable volatility in the rand, with as much as 2.5% of its value erased. 

“Initial market responses to the news today saw the rand weaken and brought a day of volatility to the fore, influenced by uncertainty over potential shifts in US policies,” she said.  

“The reaction, albeit volatile, does not reflect a ‘shock’ factor, and the Trump trade has been priced in over the past few months. We are, however, entering a new era of uncertainty.” 

“Therefore, when looking at the rand’s movement, it has not been as exaggerated as one would have expected,” she said. 

This is because markets have a much better understanding now of what a Trump presidency entails than when he came in as a political unknown in 2016. 

“The markets are much more conditioned now to react to actual policy movements instead of trading on the back of noise,” Botes said. 

The graph below shows the CEF’s projection for the basic fuel price over the past two months.

Basic fuel price in cents per litre