Market conditions are turning for local petrol prices, with a stronger rand and lower oil prices flattening what could have been a significant hike at the pumps in April.
While not cemented in by any means, the latest data from the Central Energy Fund shows that the under-recovery in petrol prices seen at the middle of the month is now flat – while diesel is still on track for a sizeable cut.
As of 22 March 2023, petrol prices are showing flat at a 0 to 1 cent change in pricewhile diesel should be coming down by around 56 cents per litre.
The market snapshot was recorded with the rand/dollar exchange rate sitting at R18.54 to the dollar. However, following the US Fed FOMC raising rates by 25bps as expected – and hinting at a further 25bps still to come – the dollar weakened quite significantly, boosting the rand.
The rand is currently trading at around R18.08 against the dollar, which, if sustained, will likely push local petrol prices into the green.
The stronger rand is also being supported by lower oil prices, which have persisted for much of the month.
Despite a brief three-day rally this week, oil fell on Wednesday as investors weighed the Fed’s policy outlook and digested a mixed snapshot 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 trading at around $75 a barrel, down significantly from $85 a barrel at the start of the month.
Bloomberg noted that crude is headed for the steepest first-quarter drop since 2020 when the pandemic hammered 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 brighter prospects for local petrol prices come with the ever-green caveat that market conditions can change quite rapidly, particularly in the context of the volatile rand/dollar exchange rate.
As noted by the South African Reserve Bank, the rand has not quite acted as it should, with local factors such as load shedding, low economic growth prospects and persistent and embedded issues like high levels of unemployment being a constant drag.
The country also faces its own interest rate decision by the central bank next week, which will add pressure to markets. Analysts and economists anticipate another 25 basis point hike coming, which will push South Africa’s prime lending rate to 11.00%
The SARB is also expected to give its latest economic growth forecast, which after a cut to 0.3% GDP growth for 2023 at its last meeting, could point to a recession in the country.
The Department of Mineral Resources and Energy will announce the official petrol price changes before they come into effect on Wednesday, 5 April.
Read: The R-word hangs heavy over South Africa
