Fuel prices are set to reverse trend for the first time in five months this coming November, with mid-month fuel price data from the Central Energy Fund (CEF) indicating that the cost of most propellants is expected to rise.
Despite an overall strengthening of the domestic currency during the first weeks of October, a rapid increase in international oil prices has dealt a big blow to fuel users.
In September, the average rand/US dollar exchange rate trended between a low of around R17.68/dollar and a high of R17.85/dollar. In the first two weeks of October, it sat between a low of R17.15/dollar and a high of R17.41/dollar.
This positive shift resulted in an over-recovery in domestic fuel prices of between 15c and 16c/litre, depending on the grade.
Meanwhile, the cost of Brent Crude oil skyrocketed off the back of escalating tensions in the Middle East, rising from $71.98/barrel on 27 September to a maximum of $80.93/barrel on 7 October before dropping back down to $77.46/barrel by 14 October.
This overshadowed the gains in the exchange rate, resulting in an under-recovery of 18-29c/litre for petrol and 29-30c/litre for diesel.
Taking into account these inputs, fuel prices in South Africa this November are expected to be adjusted as follows:
- Petrol 93 – Increase of 3c a litre
- Petrol 95 – Increase of 14c a litre
- Diesel 0.05% – Increase of 14c a litre
- Diesel 0.005% – Increase of 13c a litre
It must be noted that these predictions are not the official changes that will be made by the Department of Energy next month, which may be higher or lower as they also take into account any potential changes in the Slate Levy, taxes, transport costs, or wholesale and retail margins.
Dark clouds gather
While things were looking good for fuel prices for the remainder of 2024 just a few months ago, the picture has dramatically changed since then.
On 1 October 2024, Iran launched a missile attack on Israel following the latter’s offensive on Hezbollah militants hiding out in Lebanon.
Media reports from the region claimed that Israel allegedly infiltrated dozens of walkie-talkies and pagers used by Hezbollah members and detonated small explosives in these devices, leading to severe injuries and even deaths of both suspected Hezbollah operatives as well as civilians.
After Iran’s retaliation, global oil prices immediately shot to upwards of $80/barrel from the low-$70s they were trading at all of September, with investors fearing the worst.
Iran is one of the world’s top oil-producing nations, adding approximately two million barrels per day to the global oil supply.
Furthermore, 21 million barrels of oil travel through the narrow Strait of Hormuz every day, which is primarily under the control of Iran, the United Arab Emirates, and Oman.
Therefore, should Iran get embroiled in a full-scale war with Israel, it is likely to lead to global oil shortages, which in turn will push up the price of fuel.
The World Bank estimates that a small disruption in the oil supply, which is classified as the removal of between 0.5 to two million barrels of oil per day, would likely lead to a 6.5% increase in domestic fuel costs, all else equal.
A medium disruption – which is the removal of three to five million barrels – could see a 17.5% increase in the prices at the pumps, and a large disruption of anywhere above six million barrels may result in a 37.5% hike.
Much of this depends on Israel’s next move, which the country has indicated will not be kind to Iran.
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