Big turn for petrol prices in December

The recent weakening of the rand to above R18 to the US dollar has erased the prospects of a substantial cut to petrol prices next month, and diesel prices are now likely to increase significantly. 

Initial forecasts for December expected petrol prices to come down marginally and diesel prices to see a slight increase. 

However, while oil prices have come down throughout the past month, the rand has significantly weakened over the past two weeks. 

The Central Energy Fund (CEF) tracks these changes to the oil price and the rand-dollar exchange rate. It now forecasts the below changes to the prices of petrol and diesel in December. 

• Petrol 93 – decrease of 12 cents per litre
• Petrol 95 – decrease of 1 cent per litre
• Diesel 0.05% – increase of 44 cents per litre
• Diesel 0.005% – increase of 43 cents per litre

The Department of Mineral and Petroleum Resources uses the average exchange rate over the past month to determine the official prices of petrol and diesel at the pumps. Thus, the CEF uses the same methodology in its forecasting. 

As a result, the effect of a weaker rand is only likely to get worse before the end of the month as its sharp drop in value compared to the dollar drags the average exchange rate higher. 

A weaker rand raises the cost of importing oil and other petroleum products into South Africa, thus increasing prices at the pump. 

The rand has been on a downward trajectory since the US election on November 5, 2024. Before the election, the rand was trading at approximately R17.46 against the US dollar.  

Following Donald Trump’s announced victory, the rand’s value dropped sharply as the US dollar strengthened, driven by safe-haven inflows into US treasuries. 

This shift reflected concerns over a weaker global economic outlook, rising US inflation, and fewer anticipated US interest rate cuts.  

By Friday, November 15, the rand had fallen to R18.64/USD, marking its weakest point since August, prior to the start of the US interest rate cut cycle in September, when financial markets began pricing in expectations of the cuts.

The rand’s weakening can be seen in the graph below, courtesy of the CEF, with the impact on the average exchange rate lagging. 

While there is better news on the oil front, its impact is only likely to be felt early next year as the Organisation for Petroleum Exporting Countries (OPEC) only meets in December to discuss its production levels for next year. 

Demand for oil has come under pressure throughout 2024 as the world’s largest importer, China, struggles to revive its economy. 

The Chinese economy is still expected to grow in 2024 but will most likely miss the government’s stated target of 5% GDP growth for the year. 

A Trump presidency in the US has also put downward pressure on the price of oil as it is expected to ease regulations on the creation of new oil wells and increase the US’ shale operations. 

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

An increase in supply from US producers will put added pressure on OPEC members to ease their production cuts for 2025 as they are beginning to lose market share. 

OPEC has imposed production cuts on its members throughout 2024 in an attempt to stabilise the oil market and keep prices elevated. 

However, this has not panned out as expected, as the organisation’s influence has been diluted by increased US production and supply from South America. 

Its members, including Saudi Arabia, have now been talking about lifting these supply caps to maintain their market share and generate valuable foreign currency earnings to boost their state budgets. 

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