The escalating cost of living crisis in South Africa has been exacerbated by rising fuel prices. This situation has been intensified by global events such as the ongoing Russia-Ukraine conflict, among other factors. Compounding this crisis, the South African rand has depreciated significantly, reaching a record low against the US dollar. However, in a silver lining of this dark cloud, motorists in South Africa can expect some reprieve at the fuel pumps come June.
Data recently released by the Central Energy Fund for the week ending May 26 indicate that, despite the overall situation, an over-recovery is occurring due to reduced global oil prices. If there are no drastic fluctuations over the ensuing days, it is expected that petrol prices will decrease by approximately 80 cents per litre next week. Similarly, diesel prices are projected to reduce by around 90 cents per litre.
Reasons for high fuel prices in South Africa
This decline in fuel prices can be attributed primarily to reduced global oil prices, which in turn have helped mitigate international product prices, resulting in an over recovery ranging between R1.27 and R1.37 per litre. However, the devaluation of the rand has had a substantial impact on this over recovery, shaving approximately 43 cents per litre off the benefit.
The Department of Energy has pointed out that these figures are not indicative of future trends and do not factor in potential adjustments such as slate levy modifications or retail margin alterations. These adjustments are determined by the department at the end of each month, taking various factors into account.
Fuel costs within South Africa are predominantly influenced by the rand/dollar exchange rate and international oil prices. Consequently, the fuel price is adjusted on the first Wednesday of each month based on these elements. The next adjustment will come into effect on Wednesday, June 7.
An analysis by Bloomberg reveals that oil prices rose last week following a tentative agreement between US President Joe Biden and Republican House Speaker Kevin McCarthy on the US debt ceiling, potentially averting a disastrous default.
Despite this rise, oil prices have remained about 9% lower this year due to factors such as China’s tepid economic recovery and the Federal Reserve’s aggressive monetary tightening. The resilience of Russian supply, even amid stated output reductions, has further influenced this scenario.
Significantly, despite these complex dynamics, the overall trend of lower oil prices over the period has had a positive effect on South African consumers.
However, the South African rand has unfortunately followed a converse trend, undergoing severe pressure throughout May. This has been exacerbated by concerns over a potential grid collapse, allegations of South African arms supplies to Russia, and international banks warning of a looming recession.
Although many of these issues have since been addressed or dismissed as unlikely, the rand continues to bear a high-risk premium. Unless there is a significant shift in policy or a boost from local economic indicators, the rand’s weakening trajectory is likely to persist, leaving South Africa exposed to further economic shocks.
The Department of Energy will issue official changes to the petrol prices before they are implemented next week, providing a clearer picture for South African motorists moving forward.
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