Bad news for petrol prices in South Africa

[Nat Quinn]

South African motorists should prepare for a petrol price hike in August, economists warn.

Stats SA reported a lower-than-expected headline inflation rate on Wednesday (18 July) at 5.4%, down from 6.3% recorded in May.

According to Investec analyst Annabel Bishop, one of the drivers of lower inflation has been the declining petrol price, which fell by 71 cents per litre in June and fell further in July with a drop of 17 cents per litre.

However, the picture is shifting for August – with current data pointing to a probable petrol price hike of 9 cents a litre. Fortunately, this is unlikely to impact August’s CPI, Bishop said.

The latest data from the Central Energy Fund shows that the picture has changed for petrol prices since the start and middle of the month.

After showing a flat rate or slight decrease on the cards of petrol prices in August (-4cpl to +4cpl, depending on grade), rising global oil prices have pushed all fuel grades into under-recovery territory.

The CEF is showing a petrol price hike of between 3cpl and 9cpl on the cards for August.

The situation is even worse for diesel, with the CEF showing an under-recovery of 47cpl (unchanged from mid-month).

As has been the case since the start of the month, the main driver behind the higher fuel prices is the cost of international products underpinned by oil.

The stronger rand has been working to the benefit of local pricing, currently accounting for an over-recovery of 9cpl in the price. However, this is not enough to counter the under-recovery from global oil prices of 11-18cpl for petrol and 56cpl for diesel.

According to Bloomberg analysis, oil prices have steadied as persistent demand concerns were offset by declines in crude stockpiles in the US.

Oil is currently trading at around $79.50 a barrel. While this is still marginally down on a year-on-year basis – and down since the start of the year – it is up from the $75-a-barrel levels seen at the end of June, hence the under-recovery.

Higher oil prices have been supported by China’s efforts to stimulate economic growth, which pushes up demand. However, this has been tempered by a stronger dollar in recent days.

China’s stimulus will also have an impact on the rand, which has strengthened to under R18/$ and settled at R17.80 on Thursday morning.

According to TreasuryOne, the rand has performed well against the dollar, benefiting from the alleviation of electricity shortages, reduced political risks, and a rally in industrial-metal prices.

“Inflows in the domestic bond market have also provided support,” it said.

“However, concerns about China’s economic stimulus and the performance of the industrial metals complex could hinder the rand’s rally.”

The group said that the currency’s ability to break through the 200-day moving average and sustain its upward momentum depends on a sustained recovery in these commodities.

 

SOURCE:Bad news for petrol prices in South Africa – BusinessTech

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