Big petrol price cut coming next week

 ·29 Nov 2023

Despite some volatility with the rand, global oil prices have remained stable at lower levels in November, cementing a petrol and diesel price cut for South African motorists next week.

The Department of Mineral Resources and Energy will announce fuel price changes before they come into effect on Wednesday, 6 December, where current data points to a cut for both petrol and diesel.

Daily under and over-recovery numbers from the Central Energy Fund (CEF) point to a petrol price cut of around R1.00 per litre, and a much bigger cut for diesel at between R2.22 and R2.28 per litre.

Having maintained relative strength for most of November, the rand is still contributing to an over-recovery of 32-38 cents per litre in local fuel prices – but the bulk of the benefit is coming from over-recoveries in international product prices, which are contributing 66 cents per litre for petrol and R1.90 per litre for diesel.

At these rates, South African motorists could see petrol prices reach R22.90 for 95 grade, while diesel could come down to a wholesale price of just over R20 per litre in time for the festive period, where many will be travelling to holiday destinations.

While the rand has experienced quite a bit of volatility in recent weeks – trading in a wide range, between R18.10 to the dollar and even briefly touching past R19.00 to the dollar last week – it has averaged around R18.50 to the dollar for November.

This is much lower than the R19.10 average seen in October, hence its positive contribution to the over-recovery.

Oil prices, meanwhile, have come down significantly from the turmoil in global markets in early October where the Hama-Israel war sent traders into a spin over fears that the wider Middle East would be pulled into the conflict.

However, as those jitters dissipated over November, prices fell, even testing a move under $80 a barrel at one point.

Overall, international product prices have also trended much lower than the levels seen in October. Some uncertainty still persists in the market, but this late into November, changes are unlikely to impact the pricing for December.

According to Bloomberg analysis, global benchmark Brent climbed above $82 a barrel after rallying by more than 2% earlier this week.

Prices firmed on expectations across markets that the US Fed has finished with policy tightening and may start cutting borrowing costs in the States next year, with recent dollar weakness also providing support.

“The price move pulled oil out of a holding pattern ahead of an OPEC+ meeting that’s set to take place Thursday (30 November). The producer group is due to meet online and set policy for 2024, but has yet to resolve a dispute over output quotas for some African members, according to delegates,” the group said.

Despite these uncertainties, however, oil remains on track for a back-to-back monthly decline on increased supply from countries outside the OPEC+ countries – but this will boost pressure on the cartel and its allies to impose deeper output cuts, Bloomberg warned.

Regardless, economists and analysts have pencilled in a petrol price cut for December, which should go some way in helping ease inflation, and settle worries over any potential interest rate hikes in the new year.

Inflation numbers in September and October were pushed higher by significant petrol price hikes in those months, which triggered some concerns that the South African Reserve Bank would hike rates in its November meeting.

However, the bank unanimously voted to hold rates, with the prevailing view being that inflation will ease, and firmly settle within the target band.

Read: Interest rate joy around the corner for South Africa

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