Fuel Prices go from Better to Worse for November 2024

Motorists in South Africa are in for mixed news as petrol and diesel prices worsen for November, reflecting the impact of global oil prices and a weakened rand. Rising oil prices and a volatile local currency have diminished initial hopes for significant price cuts in November.

Petrol and Diesel Price Reversals

According to the latest data from the Central Energy Fund (CEF), South Africans could expect smaller cuts at the pumps than previously anticipated. Petrol prices, initially set for a reduction of up to 80 cents per litre, have now been scaled back to between 15 and 23 cents per litre. Diesel prices, which were also set for significant cuts, have shrunk to just around 10 cents per litre. This sharp reversal comes after months of price relief, driven by stronger rand performance and lower oil prices.

However, things have changed quickly. By mid-October, both petrol 95 and diesel showed an under-recovery of 6 to 7 cents per litre, indicating that motorists could be in for a price hike soon if market conditions persist. The only exception is petrol 93, still showing a slight over-recovery, but this too may diminish as international factors evolve.

Global Oil Prices and Geopolitical Tensions

A key factor behind these fluctuations is the rising Brent crude oil price, which has climbed due to escalating geopolitical tensions in the Middle East. Traders have been on edge following concerns that oil supplies from Iran could be disrupted due to ongoing hostilities. Brent crude, which was around $70 per barrel at the end of September 2024, quickly rose above $80 per barrel, driven by fears of further conflict.

Investec’s chief economist, Annabel Bishop, explained that these geopolitical risks, combined with comments from OPEC+ that crude should remain above $80 per barrel, have significantly influenced oil prices. This rise has been compounded by weaker economic data from China, which has injected additional uncertainty into global energy markets.

The Rand’s Weakened Performance

The local currency has also played a major role in eroding potential fuel price cuts. In September 2024, the rand was trading stronger at around R17 to the US dollar, but by mid-October, it weakened to around R17.64. This drop has added to the woes of motorists, as a weaker rand increases the cost of importing fuel.

Bianca Botes, director at Citadel Global, noted that the rand has struggled to find direction, stalling around R17.45 due to global uncertainty and a stronger US dollar. South African Reserve Bank (SARB) rate cuts and US economic data have also contributed to the local currency’s volatility.

Impact on South Africa’s Economy

Fuel price increases are particularly concerning for the South African economy. As petrol and diesel prices rise, so do inflationary pressures. Bishop highlighted that fuel prices are the fourth largest contributor to inflation in the country, and any upward shifts could drive consumer price inflation (CPI) higher. While South Africa has enjoyed recent price cuts—R1.14 per litre in October and 92 cents per litre in September—these reductions may not last.

The looming possibility of price hikes in November is bad news for consumers already grappling with economic challenges. Rising fuel costs not only impact inflation but also affect broader economic stability, making everyday goods and services more expensive.

Conclusion

Motorists in South Africa should prepare for continued fuel price volatility as global oil prices and the rand’s performance remain unpredictable. Geopolitical tensions, especially in the Middle East, and economic concerns in China are likely to keep fuel prices unstable. While some relief is still possible, current trends suggest that significant cuts are unlikely, with the potential for price hikes instead.

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