Bad news for petrol prices next year and in 2026

The Organisation for Petroleum Exporting Countries (OPEC) has delayed its plans to increase oil output by three months and will not fully unwind its production cuts until the end of 2026. 

This is set to put upward pressure on oil prices throughout 2025 and 2026, with any potential supply shock having significant consequences. 

There had been talk of OPEC completely removing its supply cuts at its meeting last week, but this did not materialise. 

Saudi Arabia, in particular, had been expected to push for the removal of the supply cuts as it has been steadily losing market share to other producers. 

OPEC’s influence over the supply of oil has been steadily eroded in recent years, with increased production in the US and Brazil diluting the impact of its members on the broader market. 

However, the organisation’s members still pump around half of the world’s oil, and it plays a vital role in balancing supply and demand. 

Despite the group’s supply cuts, global oil benchmark Brent crude has mostly stayed in a $70 to $80 per barrel range this year. On Thursday, it traded near $71 a barrel, having hit a 2024 low below $69 in September.

OPEC’s continued supply cuts prevent any likelihood of oversupply in the coming years, with its members looking to keep the oil price stable and high enough to boost their state finances. 

The organisation’s members are holding back 5.86 million barrels per day of output, or about 5.7% of global demand, in a series of steps agreed since 2022 to support the market, Bloomberg reported. 

The steps include cuts of 2 million bpd by the whole group, 1.65 million bpd of first stage of voluntary cuts by eight members and another 2.2 million of second stage of voluntary cuts by the same eight members.

Last week, OPEC+, which includes Russia, agreed to extend the 2 million bpd and the 1.65 million bpd of cuts until the end of 2026 from the end of 2025.

According to Reuters calculations, the gradual unwinding of 2.2 million cuts will start in April 2025 with monthly increases of 138,000 bpd and last 18 months until September 2026.

The group had previously planned to unwind the 2.2 million cut over 12 months through monthly output increases of 180,000 bpd.

OPEC+ also agreed to allow the United Arab Emirates to raise output by 300,000 bpd gradually from April until the end of September 2026, instead of the earlier plan to start it in January 2025.

The extension of these cuts will keep the oil supply tight and make the market increasingly vulnerable to an external shock as there is no excess production from the group to provide a buffer. 

In the immediate future for South African motorists, petrol and diesel prices are set to rise marginally at the start of 2025. 

While the oil price has remained relatively stable, the rand has weakened markedly since the US election on 5 November. 

This has made the cost of importing oil and petroleum products more expensive, translating to higher prices at the pumps. 

The Central Energy Fund (CEF) tracks the global price of oil and the rand-dollar exchange rate to forecast the expected changes to the price of petrol and diesel in the coming month. 

It expects the below changes for January 2025 –

• Petrol 93 – increase of 8 cents per litre
• Petrol 95 – flat at zero cents per litre
• Diesel 0.05% – increase of 17 cents per litre 
• Diesel 0.005% – increase of 21 cents per litre

The rand continues to be the main driver behind petrol and diesel prices not coming down in South Africa despite a declining oil price over the past few months. 

The local currency continues to run above R18.00/USD as risk aversion has increased towards commodity and emerging market currencies, Investec chief economist Annabel Bishop said. 

The rand has been on a losing streak since the US election on 5 November 2024. Prior to the election, the rand had been trading at around R17.46 to the US dollar.

Bishop explained that US dollar strength has been key in weakening the rand, with safe haven flows into US treasuries, which are expected to see higher interest rates for longer, as sharp cuts in the US interest rate cycle are no longer expected.

However, some hope has come in the form of a credit rating outlook upgrade from S&P, which upped South Africa’s rating to ‘positive’. 

This means South Africa could be eligible for a rating upgrade, which would significantly boost the rand’s value. 

S&P’s rationale for the outlook upgrade was increased political stability following South Africa’s general elections in May this year and impetus for reform that could boost private investment and GDP growth.