The market conditions for local fuel prices are changing, with a stronger rand and reduced oil costs flattening what might have been a big increase at the pumps in April.
While not definitive, the latest statistics from the Central Energy Fund suggest that the under-recovery in petrol prices witnessed in the middle of the month has now flattened, while diesel remains on course for a significant decrease.
As of 22 March 2023, petrol prices are unchanged at a 0 to 1 cent change, while diesel prices are expected to fall by roughly 56 cents per litre.
The rand/dollar exchange rate was R18.54 to the dollar at the time of the market snapshot. Nevertheless, once the US Fed FOMC raised rates by 25 basis points as predicted — and hinted at another 25 basis points to come – the dollar fell considerably, helping the rand.
The rand is presently trading at roughly R18.08 per dollar, which, if sustained, will likely drive local petrol prices into positive territory.
Lower oil prices, which have remained for much of the month, are also supporting the strengthening rand.
After a three-day rise this week, oil dipped on Wednesday as investors absorbed the Fed’s policy stance and a mixed picture of US supply and demand.
“Fed Chair Jerome Powell advised that more tightening may be in store after Wednesday’s 25 basis-point rise, and added that rates won’t be cut this year. The comments came less than two weeks after the most severe banking crisis since 2008,” Bloomberg analysts said.
Brent crude is selling at roughly $75 per barrel, down from $85 at the start of the month.
According to Bloomberg, oil is on track for the largest first-quarter loss since 2020, when the flu slashed demand.
“The slump has been driven by concerns about a potential US recession, robust Russian flows despite Western sanctions, and the banking turmoil,” it said.
“Still, there are signs of strong demand in Asia as China recovers after the nation ditched its Covid Zero policy late last year.”
The improved outlook for local petrol prices comes with the ever-present caution that market circumstances can shift relatively quickly, particularly in the context of the volatile rand/dollar exchange rate.
The South African Reserve Bank has underlined that the rand has not been behaving as it should, with local factors such as load shedding, low economic growth expectations, and chronic and ingrained difficulties such as high unemployment serving as continual drags.
The country’s central bank will also make an interest rate decision next week, which will put more pressure on markets. Experts and economists predict another 25 basis point increase, bringing South Africa’s prime lending rate to 11.00%.
The SARB is also likely to release its newest economic growth prediction, which, after being reduced to 0.3% GDP growth for 2023 at its previous meeting, might lead to the country entering a recession.
The formal petrol price increases will be announced by the Department of Natural Resources and Energy before they go into effect on Wednesday, April 5th.
