Petrol price relief for South African motorists

Petrol prices in South Africa have already come down significantly this year, providing much-needed relief for motorists and tempering inflation in the country. 

Investec chief economist Annabel Bishop expects oil prices to continue to moderate throughout this year, which could spell good news for local fuel prices.

Bishop recently noted that South Africa’s petrol has already dropped by over R1 per litre so far this year, following June’s 5 cents per litre reduction.

Bishop explained that this significant year-to-date drop was aided by a moderation in global oil prices and a stronger rand against the US dollar.

“Oil prices are still expected to be moderate this year, aiding inflationary pressures,” she said.

The Brent crude oil price has lifted to $67.22/bbl, from US$62.78/bbl earlier in the month. However, Bishop said the rand’s recent strength against the US dollar counteracted some of the increase, with market sentiment lifting in May and indications of mildly higher global growth.

She added that improved sentiment has contributed significantly to the recent moderate lift in oil prices. However, the current round of US/China trade talks is hoped to see a further de-escalation in the trade war, bolstering growth and oil price expectations.

“The escalation in the Russia/Ukraine war has also had an impact on oil prices, but with concerns coming from the supply side instead, as worries over a tightening in sanctions have also impacted the oil price recently,” Bishop explained.

“The US dollar has been under increasing pressure, weakening since January this year as the new US Administration came in, adding some modest support to commodities’ prices, and so oil.”

The dollar’s relative weakness has been a boon for the rand this year, which hit its lowest level in months recently when the currency dropped below R17.70/USD on Monday, 9 June.

Dollar troubles

Bishop explained that dollar weakness has been driven by the volatility in the United States’ tariff policies and uncertainty for the US economy and, therefore, global growth.

The uncertainty comes as the US has hiked tariffs steeply, paused or rolled them back, then re-embarked on tariff increases again in April.

“While the worst of the US’s Liberation Day tariffs have been paused and renegotiated, with the aim to roll them back in the main after re-ordering international trade, concerns persist over the impact on sentiment and economic growth,” she said.

This uncertainty has far-reaching consequences, as policy volatility also negatively affects investor sentiment, adding to the greenback’s weakness.

The dollar’s weakness has allowed emerging market and commodities currencies like the rand to see strength against it in the main, year on year.

This is positive for South Africa in several ways, as the rand’s strength against the US dollar this year has also contributed significantly towards lower inflation in the country.

This is because dollar-based petroleum and agricultural products are key drivers of South Africa’s inflation outcomes.

Fuel taxes

While a moderating oil price and dollar weakness could lower South Africa’s fuel price over the next few months, the government’s recent tax hikes pose a major risk to this outlook.

In the 2025 Budget presented in May, Finance Minister Enoch Godongwana announced an inflation-linked increase to the General Fuel Levy.

Godongwana said this was intended to compensate for the lost revenue from the reversed VAT hike and lower-than-expected tax receipts resulting from a deteriorating growth outlook. 

“It means from the fourth of June this year, the General Fuel Levy will increase by 16 cents per litre for petrol and by 15 cents per litre for diesel,” Godongwana said. 

This will result in a General Fuel Levy of R4.01 per litre for petrol at the pump and R3.85 per litre for diesel. As a result, taxes will make up 29.9% of the price of petrol and 33% of the price of diesel at the pump.

Road Freight Association CEO Gavin Kelly has warned that these increases will translate into rising costs for all South Africans, as 85% of goods are transported via road in the country. 

This makes fuel an almost universal input into the economy, with an increase in its price raising the economy’s price base. 

“There is this sort of rolling impact along the whole line that extends beyond just the final transport leg to get the goods to where they are sold,” Kelly recently told Newzroom Afrika. 

Increases in the fuel levy also raise concerns about inflation in the country, as they push prices higher almost instantly. 

While other factors impacting the fuel price are temporary, such as a spike in oil prices or a strengthening rand, the levies are locked in and unchanging.

Therefore, while a moderating oil price may lower the cost of fuel, this impact could be offset or muted by the general fuel levy increase.