Africa-Press – South-Africa. Positive movements in global oil prices and a solid start to the month for the rand points to little change building for June’s petrol price, says Investec chief economist Annabel Bishop.
Motorists were hit with a fourth consecutive petrol price hike this week, with both 93 and 95 petrol going up by 37 cents per litre from Wednesday (1 May). Diesel users were given some relief, with prices coming down by around 35 cents per litre.
However, Bishop noted that global oil prices came off this week as the start of the US interest rate cut cycle has been delayed, causing expectations of demand for oil to dull somewhat.
This pointed to “little change building for June’s petrol price,” she said.
“The Brent crude oil price has subsided below US$90.0/bbl, after exceeding this level in April and resulting in petrol price hikes for South Africa, following temporarily intensified conflict in the Middle East and in the Russian/Ukraine war,” Bishop said,
“While the Brent crude oil price is below US$90.0/bbl, falling over the past couple of weeks towards US$80.0/bbl, there is likely to be continued volatility, as geopolitical tensions flare up and then die down, afflicting markets.”
The economist said that the downward momentum in oil prices over the past couple of weeks was also supported by market expectations that the US could begin replenishing its strategic reserves, providing some fundamental limits to oil price increases.
“US inventories have risen, and world oil demand has slowed, with further delays to the start of the US interest rate hike cycle, while the potential for an Israeli/Hamas ceasefire also aided prices lower.”
The other aspect of the local petrol price equation is the rand, which has also had a relatively strong start to the month.
The rand strengthened this week after the US Fed held on rates, firming expectations for a cut around November.
Bishop warned, however, that the rand, while trading around R18.56/USD Friday, is still volatile, and also subject to rapid change on differing US data prints.
“The rand’s movements post the FOMC show its sensitivity to US market events, but marked rand strength, aiding inflation lower, is unlikely this quarter without US rate cuts,” she said.
The rand and oil equation is important for more than just local fuel prices. Bishop noted that rand strength helps reduce inflation, as both food and fuel prices in South Africa are driven by international commodities.
“But the domestic currency will need to see substantial, sustained strength to make an impact on SA’s inflation outcomes,” she said.
The rand is currently undervalued by around R3.00, reflecting the high risk premium attached to South Africa.
As the volatility in both the rand and oil prices is expected to continue, it’s still far too early to lay out solid projections for where petrol prices will head next – but conditions are starting off positively in May.
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