South African motorists can expect more relief at the fuel pumps as we move towards the end of 2024.
Fuel prices have been on a rocky ride in 2024 thus far, experiencing several increases between January and May and consecutive decreases between June and August.
Petrol rates reached a high of R25.49 per litre of 95 unleaded in May before dropping back down to the current level of R23.11 per litre. Meanwhile, diesel 50ppm rocketed to R22.62 per litre in March but has since fallen to R20.74 per litre.
According to FNB Senior Economist Koketso Mano, this downtrend in petrol costs consumers have enjoyed in the last three months should continue until the end of the year, however, diesel prices may not be so fortunate.
“Daily indications from the Central Energy Fund show an average over-recovery, north of 50c, for both petrol and diesel over the first half of this month, up to the 13th of August,” Mano told TopAuto.
This indicates that another fuel price cut is likely on the cards for September and that would be the fourth consecutive decrease since June.
“We currently project a continued downward trend, with petrol prices potentially falling below R20 per litre in the early part of 2025,” said Mano.
Conversely, the economist said that diesel prices may move in the opposite direction of their cleaner counterpart.
“Wholesale diesel prices, which are already at lower levels, should experience more upward pressure – especially as global economic activity starts to recover from the cost-of-living crisis,” said Mano.
These expected trends are based on weaker-than-expected economic indicators out of the United States (US), subdued oil demand from China, and slowing global inflation.
Moderating refinery margins, range-bound oil prices, and a stronger rand have generally supported the fall in fuel prices over the past few months.
However, the seasonal demand uplift in the Northern Hemisphere, weather-related supply disruptions in areas such as Canada, and low inventories in the US have recently provided upward pressure to oil product prices.
“Nevertheless, weaker-than-expected data out of the US suggests that the economy is slowing faster than expected and demand in the world’s largest economy should slow. In addition, a fragile recovery by the Chinese economy, the largest importer of oil, should weigh on prices,” said Mano.
“Softer economic data from the US also suggests that a Federal Reserve interest rate cut is looming, and the consensus call is that the first cut will be delivered in September. There is also the possibility that the quantum of cuts this year could be larger.”
This should attract investors away from the US dollar and towards riskier assets such as the rand.
Therefore, FNB anticipates a recovery in the rand to a fair value of around R17.50 towards Q4 2024, which would support lower fuel prices and slower inflation.
The wildcards
The oil market is highly sensitive to global sentiment and economic data, hence, the outlook can change at a moment’s notice should current conditions change.
Mano highlights that geopolitical tensions in the Middle East remain elevated with a heightened risk of retaliation by Iran following high-profile assassinations of its proxy militant group leaders by Israel. This could snowball into a regional conflagration which will likely impact the global supply of oil.
Furthermore, softer-than-expected global economic data could delay the intended OPEC supply increases from October, and any other responses from the cartel would potentially affect sentiment and compound the risk premium.
Should these risks come to fruition, oil prices could see a noticeable increase towards the end of the year and drag fuel prices along for the ride.
The rand/US dollar exchange rate has also been turbulent during 2024 on the backdrop of a challenging global economic landscape; volatility that is expected to continue as market repricing takes shape.
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