Good news for petrol prices in December – with one big catch

Petrol prices are set to come down in December, while both grades of diesel are expected to rise as the international product price of the fuel remains elevated. 

However, unless there is a dramatic turnaround in the rand’s fortunes throughout the rest of the month, the fuel price will likely rise as the local currency has weakened significantly this week. 

The latest data from the Central Energy Fund (CEF) indicates that the international prices of petrol and diesel have diverged in recent weeks. 

While petrol has remained relatively flat, diesel has increased and settled at a higher price. This means that diesel prices are set to rise more sharply than their petrol counterparts. 

The forecasted changes by the CEF are shown below.

• Petrol 93 – decrease of 16 cents per litre
• Petrol 95 – decrease of 5 cents per litre
• Diesel 0.05% –increase of 38 cents per litre
• Diesel 0.005% – increase of 36 cents per litre

The CEF’s calculations use the average monthly rand-dollar exchange rate and do not fully account for the recent weakening of the rand. 

If the rand remains weak, at levels above R18 to the dollar, then it is likely that all grades of fuel will experience a hike in pump prices in December as the cost of importing petroleum products will be elevated. 

Despite initial weakness after the US election, the rand appeared to hold its own versus the greenback and bounced back to R17.26 to the dollar on 7 November. 

A week later, the currency traded at R18.27 /USD after significantly weakening versus the greenback. 

This has primarily been attributed to the ramping up of so-called ‘Trump trades’, with investors flocking to the dollar and US-based assets in anticipation of improved performance due to corporate tax cuts. 

This has been coupled with investors dumping emerging market assets out of fear the US will place tariffs on China and other developing economies that run trade surpluses with America. 

Potential tariffs on China are the most worrying for South Africa, as the East Asian country is its largest trading partner and provides it with valuable foreign exchange earnings from commodity exports. 

Any economic weakness in China directly affects commodity prices and, as South Africa is a commodity-dependent economy, significantly impacts its export earnings and economic performance. 

On the other hand, oil prices have declined since the US election as Trump is expected to ease regulations on the creation of new oil wells and shale operations. 

This would bring additional supply online in time, putting downward pressure on prices. 

Furthermore, China is expected to miss its GDP growth target of 5% for the year, with a weak economy reducing its oil demand. 

As the largest importer of the commodity, reduced demand from China puts significant downward pressure on prices. 

The ongoing pressure on demand has been coupled with talk of supply greatly ramping up as the Organisation for Petroleum Exporting Countries (OPEC) considers removing supply caps. 

These caps have been in place for the past year to try to ensure a stable oil market and artificially boost prices by reducing supply. 

However, OPEC members now fear losing market share to other producers, such as the US, and think it may be necessary to remove supply caps to reclaim their position in the market. 

Crucially, Saudi Arabia seems broadly supportive of these efforts and may push for removing supply caps at OPEC’s next meeting in December. 

This is expected to put downward pressure on oil price in the medium to long term and will not provide relief for South African motorists at the pump in December.