Business
Big Petrol Price Increase for South Africa Next Week
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Month-end data from the Central Energy Fund (CEF) points to a big petrol and diesel price increase incoming.
Petrol prices are ending the month with an 84 to 90 cents per litre under-recovery, while diesel prices are under by around R1.05 per litre.
While the rand has strengthened slightly in the recent sessions, and global oil prices have receded, this has not been enough to counter the under-recoveries over January.
These are the month-end projections:
Fuel Type | Price Increase |
---|---|
Petrol 93 | R0.90 per litre |
Petrol 95 | R0.84 per litre |
Diesel 0.05% (wholesale) | R1.07 per litre |
Diesel 0.005% (wholesale) | R1.03 per litre |
Illuminating Paraffin | R0.98 per litre |
Notably, the current under-recoveries are worse than they were in the middle of the month.
The rand and oil prices are trading much higher than in December, leading to the under-recovery.
South African motorists have already had a tough start to the year, with a 19 cents per litre hike in petrol prices at the beginning of January.
This, combined with the incoming hike for February, is likely to put upward pressure on inflation.
This turn for inflation is also being signalled through the latest producer price index (PPI), which moved into inflationary territory again in December.
Consumer prices for December also turned slightly higher at 3.0%. Economists have warned that this is likely to continue increasing in the first quarter of 2025—thanks in part to rising fuel prices—but will remain within the range of the Reserve Bank’s target (4.5%).
Rand Weakness
The rand is trading much weaker against the dollar relative to the previous month, sticking to around R18.50/$ for most of the month while hitting over R19.00/$ at one point.
This is compared to the R17.40/$ levels seen in the latter half of December.
As a result, the exchange rate is contributing 37 to 41 cents per litre to the under-recovery.
Weakness was largely driven by market tensions surrounding the inauguration of US president Donald Trump, whose policies created a lot of uncertainty—particularly around tariffs.
These tensions hit a peak ahead of the inauguration, where many expected heavy trade tariffs to be applied to countries like China. However, once Trump started signing his executive orders, it became apparent that the predictions were overblown.
The market tensions persist, though, because the US president is known to be unpredictable.
The rand was also impacted by the US interest rate moves.
Given the Trump presidency’s unpredictability, the US Fed has moved into a more cautious and hawkish path for rate cuts. Following a hold on rate cuts by the Fed this week, markets anticipate only one or two more cuts this year.
This has an impact locally as well, with the South African Reserve Bank (SARB) unlikely to cut ahead of the Fed, which would weaken the rand.
The SARB cut rates by 25 basis points on Thursday (30 January), shrinking the rate differential between South Africa and the US. Economists expect one more rate cut this year if the US Fed does the same.
Oil Markets
Oil prices are currently the bigger detriment to local fuel pricing, contributing 46 to 67 cents per litre to the under-recovery.
Oil is currently trading at $76 a barrel, which is a complete turnaround from pricing for much of the month.
January saw oil prices at over $85 a barrel.
According to Samer Hasn, Senior Market Analyst at XS.com, the drop in oil comes from a set of negative factors that are likely to exacerbate concerns about either oversupply or falling demand for crude.
Notably, Trump’s tariff war is having a significant impact on pricing.
Bloomberg analysis of the market noted that Trump said he would follow through on his threat to impose 25% tariffs on imports from Mexico and Canada. Critically, he said he would also target China.
The US president flagged an imminent decision on whether crude would be included, but nothing had been announced as of midnight in Washington DC.
Despite pulling back to lower levels, crude prices in January are still higher than they were in December, hence the under-recovery in local fuel pricing.
The Department of Petroleum and Mineral Resources will announce the official price changes in the coming days, with new pricing set to kick in on Wednesday, 5 February 2025.
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