Relief on the Horizon: Potential Fuel Price Cut for South African Motorists in June

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Motorists in South Africa may soon find some respite at the pumps as early data indicates a possible decrease in petrol and diesel prices for June. According to data from the Central Energy Fund (CEF) for the first week of May, ending on the 7th, there’s an over-recovery in both petrol and diesel prices.

Petrol prices are showing an over-recovery of 34 cents per litre, while diesel is indicating a more substantial over-recovery ranging between 68 and 73 cents per litre. This potential decrease comes as a welcome turn for consumers after experiencing four consecutive months of price hikes in 2024.

The year started with a significant 76 cents per litre cut in petrol prices in January. However, prices saw a combined increase of R3.00 per litre from February to May, resulting in a net increase of R2.24 since the beginning of the year. Diesel prices have seen a comparatively smaller net increase of only 12 cents per litre during the same period.

The positive signs in fuel prices stem from a stronger rand compared to most of April and a lower global oil price, which has dropped below $83 a barrel. Both these factors contribute to the over-recovery, meaning that for prices to rise, the rand would have to weaken, and oil prices would need to increase.

Fortunately, oil prices have been on a downward trend since early April, experiencing losses in three of the past four weeks. Bloomberg economists suggest that indicators such as timespreads and processing margins point to a weaker outlook, with narrowing spreads indicating less tight conditions.

However, despite these positive indicators, economists warn of ongoing supply-side risks that could potentially push oil prices higher. Factors such as the possibility of oil-producing nations extending curbs on Iranian and Venezuelan oil and tensions in the Middle East remain significant concerns.

On the currency front, the rand has shown strength in recent sessions, largely influenced by hopes of an earlier US interest rate cut. This sentiment was bolstered by weaker-than-expected US jobs data and some weakness in the US dollar. Despite some fluctuations, the rand has remained below the R19.00 to the dollar mark, contributing positively to fuel recoveries of around 17 cents per litre.

Investec chief economist Annabel Bishop notes that the rand’s volatility is tied closely to US data and also influenced by election tensions ahead of the 29th May vote in South Africa.

While the final announcement on fuel prices for June is yet to be made by the Department of Mineral Resources and Energy, the current data suggests favorable conditions for South African motorists. However, it’s important to note that market conditions can still shift before the official announcement.

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