Petrol price warning for April

Fuel prices in South Africa are expected to rise again in April, with the rand and global oil prices under pressure in the first week of March.

While the start of the month is firmly in “too soon to tell” zone – and market circumstances can alter dramatically in the coming weeks — early statistics can hint to which signs motorists should monitor for any future planning.

According to the Central Energy Fund’s most recent daily snapshot, the under-recovery in fuel prices witnessed in February has continued into March, with both the weaker rand (for diesel and petrol) and the higher oil price (for petrol) leading to increased expenses.

By the end of the first Friday in March, petrol prices have an under-recovery (this possible increase) of 56 cents per litre, while diesel prices have an under-recovery of 6 to 9 cents per litre.

The weak rand is the main source of market pressures at the moment, however foreign product prices for fuel are still a major sticking point.

After a tumultuous finish to February, the rand has been trading in a more steady environment. Nonetheless, the local currency has stabilised over R18 to the US dollar, indicating a severe weakness.

The rand is weakening as a result of two causes: the dollar is strengthening, and local issues such as chronic load shedding and South Africa being greylisted (raising the risk of trade) are being priced into markets.

According to Nedbank experts, the rand finished last week on better ground.

“The support came from a softer US dollar and a resurgence in global risk appetites following dovish comments from a key Fed official. This followed six weeks of depreciation against the US dollar, with the rand trading at a significant discount to other emerging market currencies,” the bank said.

Notwithstanding this minor improvement, the rand is still 6.3% poorer versus the dollar year to date and 3.8% worse over the previous four weeks.

The dollar’s weakness is also anticipated to be short-lived, as traders await US Reserve data this week.

The main news this week, according to TreasuryOne, will be Friday’s nonfarm payrolls and unemployment figures in the United States.

“Markets expect a jump of between 200,000 and 240,000 new jobs in February versus January’s massive 517,000 number, while unemployment is expected to be steady at 3.4%. Any print in excess of 250,000 would put pressure on the Fed FOMC to hike more aggressively and push the dollar stronger,” the group said.

Nevertheless, the rand’s fortunes remain bleak. Stats SA will release GDP numbers for the fourth quarter of 2022 this week, with economists and experts forecasting a quarterly drop.

The economy is projected to suffer greatly as a result of the nonstop load shedding that has been in effect since September 2022. According to Nedbank, trading conditions deteriorated even more in early 2023, with predictions for Q1 2023 also pointing to a decline, indicating a technical recession.

These numbers will almost certainly keep the rand under pressure. Investec chief economist Annabel Bishop cautioned last week that the currency’s forward outlook has eroded as a result of South Africa’s inclusion on the Financial Action Task Force’s greylist (FATF).

While the decision was widely anticipated, the euro is now more vulnerable to negative shocks and pressure from the US economy.

Oil

According to a Bloomberg investigation, international goods prices also reflect a mixed picture.

According to the organisation, oil has been trading in a narrow $10 range since the beginning of the year, swayed by optimism about China’s economy and predictions of future US Federal Reserve interest rate rises.

According to Bloomberg, Saudi Arabia has signalled confidence in the near-term forecast by boosting the majority of its rates for petroleum exports to Asia and Europe in April.

Prices, however, have dipped in recent sessions, presently trading around $85 per barrel, due to China’s “modest” growth objectives and the potential of tighter US monetary policy, it added.

“Investors will be watching speeches from Fed Chair Jerome Powell and jobs data this week for clues on the path for monetary tightening. Federal Reserve Bank of San Francisco President Mary Daly reiterated in a speech on Saturday the central bank’s willingness to leave borrowing costs higher for longer,” it said.

At the annual National People’s Congress on Sunday, China declared a 5% GDP target, which was lower than experts had predicted. Late last year, the country, the world’s top oil importer, discontinued its draconian Covid Zero policy.

Yet, if China exceeds its objective and sanctions against Russia compel the nation to curtail output, greater prices are on the way.

“The GDP forecasts from China were a rather low target and may be a potential reason for oil’s weakness today,” said Giovanni Staunovo, an analyst at UBS Group AG in Zurich. “But we expect China will come in a bit above target. If Chinese imports rise and Russian production falls, prices should move higher from here.”

While both the rand and oil prices threaten to raise local gasoline prices, South African motorists should take heart in the fact that fuel taxes will not be raised.