Bad to worse for petrol prices in South Africa

South Africa’s fuel price recoveries have continued to deteriorate, as petrol is now expected to decrease by less than R1 per litre next month.

Diesel, on the other hand, has swung fully into the red with a price hike lined up for August. This is despite earlier reports from the Central Energy Fund (CEF) indicating it would see a massive reduction.

This reversal of fortunes can be attributed to the conflict between the United States and Iran, which has flared up again despite the two sides moving towards ending the war a few weeks ago.

The Strait of Hormuz has been shut down again, causing oil prices to surge from a low point of $68 per barrel at the start of July to roughly $85 per barrel as of the time of writing.

Because of this, the CEF’s new data shows that diesel will now experience an under-recovery of between 22c and 45c per litre.

Petrol is still in the green, for now, though it is looking at a much smaller price cut of 79 cents to 83 cents per litre in August.

Unfortunately, both fuel types are on an upward trend, meaning the expected price adjustments will likely be worse by the time the official changes are made in the first week of August.

These are the CEF’s fuel price adjustment predictions as of 21 July:

• Petrol 93 – decrease of R0.83 per litre
• Petrol 95 – decrease of R0.79 per litre
• Diesel 0.05% (wholesale) – increase of R0.45 per litre
• Diesel 0.005% (wholesale) – increase of R0.22 per litre

These underwhelming price adjustments will ensure that fuel prices remain much higher than they were before the war in the Middle East began.

Right now, petrol is roughly R6 per litre higher than it was before the US and Iran started trading blows, while diesel users are paying R7 per litre more than they were at the start of the year.

High fuel prices will continue to put inflationary pressure on the economy as households, businesses, and industries all bear the brunt of higher transport costs, with knock-on effects on goods and services across the supply chain.

It will also factor into the South African Reserve Bank’s (SARB’s) assessment when determining whether to hike interest rates.

The SARB’s Monetary Policy Committee is scheduled to meet this week and will announce its next policy move on Thursday, 23 July.

Economists previously expected the reserve bank to keep interest rates at their current levels, but this was before the global oil price took a turn for the worse.

Now, the expectation is that the SARB will hike rates by another 0.25 basis points, factoring in the long-term impacts of the war.

The following table shows how fuel prices will be affected in August, based on the current projections:

Petrol 93

Petrol 95

Diesel 0.05%

Diesel 0.005%