R4.19 per litre petrol price savings for South Africa

The price of 95-octane petrol has declined by R4.17 per litre in the past six months as the rand has strengthened due to renewed optimism in the South African economy and weaker oil prices. 

Other types of fuel have also seen significant price declines over the past six months, with both grades of diesel falling by over R3 per litre. 

This has provided relief for South African motorists and the broader economy, with fuel prices being a major driver of inflation in recent years. 

Petrol prices rose sharply after the Russian invasion of Ukraine at the beginning of 2022, with the average price rising by over 50% by the end of 2023. 

Since then, prices have largely remained elevated due to a high oil price, as tension in the Middle East and production cuts from key oil producers have limited supply. 

Major suppliers, through the Organisation for Petroleum Exporting Countries (OPEC), imposed production caps. 

OPEC imposed these caps to ensure oil prices remained stable and reasonably elevated as the price of the commodity played a major role in supporting their state finances. 

The effect of these production cuts has been exacerbated by fears of the conflict in the Middle East escalating and affecting the export of oil from the region. 

However, there has been very little tangible impact on oil flows out of the region over the past year, pushing traders to unwind their bets on reduced supply and higher prices. 

Furthermore, OPEC members have begun discussing the removal of production caps as they are losing market share to US producers and desperately need oil revenue to support their state finances. 

Saudi Arabia has led this charge and is expected to push for the removal of the caps at OPEC’s meeting in early December. If the caps are removed for 2025, oil prices should decline further. 

The expectation that supply caps will be removed has pushed oil prices steadily lower, with renewed tension in the Middle East briefly pushing prices higher again. 

Increased supply has been coupled with declining demand, as the world’s largest importer of oil, China, is yet to rebound from its pandemic-era lockdowns. It is expected to miss its economic growth target of 5% for the year.

As a result, the price of oil has declined by 11.5% In the past six months, pushing fuel prices in South Africa downwards. 

The other half of the equation in South Africa is the rand-dollar exchange rate as that determines how expensive it is for the country to import fuel. 

Since forming the Government of National Unity (GNU) in early June, the rand has proven resilient to external shocks and has strengthened slightly. 

This is largely due to the renewed optimism surrounding the local economy and the trend of foreign investors dumping local assets being reversed somewhat. 

South Africa’s most valuable banking group, FirstRand, expects the rand to continue to strengthen versus the dollar towards the end of 2024. 

Its investment banking unit, RMB, expects the local economy to grow by 1% this year and 1.8% next year as reforms begin to remove structural constraints on the economy. 

In this base-case scenario, the rand will strengthen to R17.25 to the dollar by the beginning of 2025. 

In its bull-case scenario, however, growth is seen at 1.5% this year and 2% in 2025, with the rand recovering to R16 to the dollar over the course of 2025. 

This appears to have been undermined somewhat by former President Donald Trump winning the US election on 5 November. 

In the immediate term, Trump’s victory led to “notable volatility” in the South African rand, with as much as 2.5% of its value erased, executive director at Citadel Global Bianca Botes said. 

“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.”  

“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.”  

The two factors of a declining oil price and a resilient rand have seen fuel prices decline significantly in South Africa over the past six months.

Despite fuel prices ticking upwards slightly in November, the downward trend is largely set to continue as oil supply picks up and remains undisrupted while the rand holds its own.

The change in the price of various fuel types over the past six months is shown in the table below.