Despite a modest rebound in the rand and a decrease in global oil prices, South Africa is bracing for unwelcome news at fuel stations in the coming week.
As August draws to a close, data for the end of the month from the Central Energy Fund suggests a significant increase in store for motorists.
Expectedly, petrol prices are projected to rise by approximately R1.60 per liter, while diesel is set to experience a notable hike of around R2.80 per liter.
The official adjustments, to be announced by the Department of Mineral Resources and Energy, are anticipated to be communicated between Friday (1 September) and Tuesday (5 September), with the changes taking effect on the following Wednesday (6 September).
Drivers are confronted with a substantial price surge due to the weakening rand throughout August, which has displayed a higher trend against the US dollar this month. Additionally, the escalating cost of oil contributes to this situation.
Despite concluding the previous week with the rand at a firmer position of R18.62/$ against the dollar, the local currency commenced August from a much stronger stance (approximately R17.90), signifying an overall weakening tendency. Consequently, local fuel prices have experienced an under-recovery of around 30 cents per liter.
In parallel, oil prices have maintained an upward trajectory over the month, reaching around $85 per barrel by week’s end, a significant increase from the $78 per barrel at the beginning of the month.
According to the Central Energy Fund’s analysis, this discrepancy has resulted in a noteworthy under-recovery range of between R1.30 and R2.40 per liter.
These dual influences are poised to deliver a double blow to consumers at fuel pumps in the approaching week.
While any relief for September appears unlikely, economists from Nedbank highlighted that the outlook might improve for the remainder of the year.
On the oil front, the potential dampening effect on oil demand posed by a weaker-than-expected Chinese economy could lead to price reductions. Despite efforts by OPEC+ nations to limit supply, futures have remained close to their year-start levels.
However, this scenario might be disrupted by the ongoing macroeconomic conditions. Prominent central bankers across the globe emphasize the necessity of maintaining higher interest rates until inflation is controlled. Additionally, a potential stimulus package in China could contribute to demand, potentially altering the narrative, as reported by Bloomberg.
The rand’s trajectory is expected to remain unpredictable and volatile, influenced by South Africa’s economic challenges and its sensitivity to shifts in global sentiment.
Nedbank’s analysis suggests that the rand’s strong gains in the previous week elevated it to a three-week high of R18.45/$, culminating in a firmer position for the local currency by week’s end, despite relinquishing some of these gains in the latter part of the week.
Apart from insights from international central bankers, optimism was boosted by better-than-expected local inflation data, suggesting that the conclusion of local interest rate hikes could alleviate pressure on domestic demand, lending strength to the local currency.
Disclaimer: The views, suggestions, and opinions expressed here are the sole responsibility of the experts. No Digest Pulse journalist was involved in the writing and production of this article.