Prospects for South African motorists have turned even more sour in recent weeks, putting petrol and diesel prices in line for a big jump in October.

Despite a slightly stronger rand, pulling back below R19 to the dollar, higher global oil prices have kept the pressure on local recoveries.

The latest data from the Central Energy Fund for the end of the third week in September shows that petrol prices are still lined up for a R1.12 hike next month, while diesel prices are also looking at a R1.75 jump.

These under-recoveries have eased off slightly from the mid-month estimates but are unlikely to reverse much in the last week of the month.

This is largely thanks to the oil price, which is currently the biggest contributor to the under-recovery.

Oil edged higher toward $94 a barrel this week after the US Federal Reserve flagged a further rise in US interest rates this year.

The Russian ban diesel exports has also played into the higher prices.

According to analysis from Bloomberg, the Fed signalled borrowing costs would stay higher for longer, boosting the dollar and dimming the allure of commodities, including crude.

However, there are still signs of tightness in the physical market, the group said.

“Russia announced a temporary ban on diesel and gasoline exports on Thursday, lifting fuel prices. In addition, crude stockpiles posted another decline, and oil’s backwardated timespreads point to strong competition for near-term supplies,” it said.

Analysts have even factored in a possible move toward $100 a barrel, which would add even more pressure to fuel markets.

The rand, meanwhile, has largely been rangebound for much of the month, sticking between R18.80 and R19.10.

This is a generally weak position – far off from the ‘fair value’ of R15.00 to the dollar. And as the country heads towards the 2024 national elections, some economists have warned that worse may be in store.

Bleak outlook

Rising petrol and diesel prices have been flagged by economists and analysts – and even the South African Reserve Bank – as key risk factors for inflation in the country.

Higher fuel prices have a direct cost to households – but diesel prices in particular have a knock-on effect on various sectors, which ultimately make their way through the supply chain.

Farmers rely on diesel in their operations, which could feed back to higher shelf prices, while the mining sector, manufacturing sector, logistics, freight and port also use diesel.

Amid record load shedding, retailers and businesses have also become tied to the diesel price – racking up billions of rands in costs to keep generators running and operations going.

The SARB in Thursday warned that rising fuel prices and diesel costs in particular would weigh on the country’s overall risk profile.

Dr Francois Stofberg, Senior Economist at Efficient Wealth, said that higher prices are overstated in the overall inflation discussion, adding that they will add pressure, but unlikely to shift the SARB’s expectations.

“Having started at around R17 to the US dollar at the start of the year, the rand has now depreciated by more than 11% year-to-date. The oil price, in turn, has increased by more than 10% already this year, reaching its latest level just above $90 a barrel. A higher oil price will likely add to inflationary pressure, although the impact of higher fuel prices is usually overstated,” he said.

“In our estimate, we consider the year-to-date deprecation of the rand and the oil price increase. We also factor in the second-round price effect, namely that higher fuel prices make ‘everything’ else more expensive.

“But, even then, the higher fuel prices we have experienced in 2023 should not add more than 1.08% to consumer inflation on an annual basis.”

What is more important, he said, is to consider the impact of higher fuel prices in the context of the deteriorating macro-economy.

“It is becoming clearer that 2023 will be a very difficult year for the South African economy,” he said.

source:Huge jump in petrol prices coming in October – BusinessTech