Petrol and diesel prices will come down marginally on Wednesday as a stronger rand offset an increase in the price of oil.
While the rand has weakened in the first week of August, the Department of Mineral Resources uses the average exchange rate in the previous month.
The oil price fluctuated heavily in July due to continued production cuts from members of the Organisation of Petroleum Exporting Countries (OPEC) and fears of a shortage of supply from the Middle East due to rising tensions between Israel and Iran.
Thus, the average Brent Crude oil price increased from $82.24 per barrel to $83.55 per barrel in July, putting upward pressure on petrol prices.
However, this was counteracted by a stronger rand thanks to sustained optimism around the Government of National Unity (GNU) and expected interest rate cuts in the US.
The expected changes to the price of fuel in South Africa are outlined below –
Petrol 93 – decrease of 15 cents per litre
Petrol 95 – decrease of 15 cents per litre
Diesel (0.05%) – decrease of 28 cents per litre
Diesel (0.005%) – decrease of 17 cents per litre
These cuts bring 95 octane petrol to R23.11 a litre in Gauteng and R22.32 on the coast. These are the cheapest levels since January this year.
The Gauteng wholesale diesel price will be R20.38 a litre from Wednesday and R19.59 on the coast, also the lowest since January.
However, this relief may prove to be short-lived as the price of oil is expected to rise due to a potential full-scale war in the Middle East.
As the region that supplies the majority of the world’s oil and is South Africa’s largest source, this will have a significant impact on the price of the commodity.
Furthermore, demand is expected to pick up in the US and Western Europe as the warmer weather brings the northern hemisphere’s driving season.
One positive for the oil price is weak economic data out of China, with the country’s growth expected to slow below 5% over the next year.
As the largest consumer of oil, this will put downard pressure on the price of the commodity. However, this is unlikely to offset any significant supply shock.
The rand is also expected to weaken, at least in the short term, as fear of a recession in the US mounts.
This has so far resulted in a significant shift away from risk assets, particularly emerging market assets, and investors fleeing towards safe-havens.
A shift towards risk-off sentiment often boosts the value of the US dollar as it is the global reserve currency, and US Treasury Bills are considered the safest asset.
This may result in the rand weakening versus the dollar and thus, the price of importing oil increasing and putting upward pressure on fuel prices.