If all goes well, petrol prices could fall to below R20 per litre by the end of 2025, but if not, they could move up to above R25 per litre.
This is the view of Koketso Mano, senior economist at First National Bank (FNB).
Mano anticipates that average fuel price movements could be broadly sideways over the year, should the market conditions persist that we saw at the tail end of 2024.
“The trend in the first part of 2025 will likely be dictated by a rand that is under pressure, while the other half could reflect rand strengthening,” said Mano.
Movements in the rand should be driven by the uncertainty surrounding policy in the United States (US) under new president Donald Trump, and how that could affect monetary policy in the US as well as overall risk sentiment.
With the policy outlook becoming less uncertain as the year progresses, we could see risk premia improving.The outlook on oil prices is more benign as weak global growth should continue to weigh on prices.
“Ultimately, volatility should remain elevated as trade and geopolitical tensions prevail,” said Mano.
Petrol price wildcards
The outlook on US policy is quite important for the performance of risk assets.
A more aggressive “America-first” policy than currently envisioned could mean stronger near-term growth in the US, more inflationary pressure, and less monetary policy space for cutting interest rates.
“In such a scenario, there would likely be further dollar strengthening which would weigh on the rand/dollar exchange rate,” said Mano.
“We could also see an escalation in geopolitical tensions which would worsen risk sentiment to the detriment of emerging market currencies.”
The coming year is also a period when policy stimulus in China is expected to start yielding results.
Should this stimulus fail to propel activity and economic outcomes in China continue to be anaemic, that would weigh on commodity prices and South Africa’s terms of trade – also weighing on the rand.
“Nevertheless, continued traction in the structural reform agenda in South Africa will be an important buffer for South African asset exposure to external risk events,” said Mano.
“All else equal, a weaker rand will contribute to higher imported inflation, including fuel, while rand strengthening will do the opposite.”
Global oil prices will be equally important to pay attention to over the coming year.
Softer global growth as a result of geopolitical tensions and trade restrictions will weigh on oil demand and prices. This could be exacerbated by policy support for US industry which may extend to oil producers.
“Such an event could see more oil supply and given that OPEC+ may not want to lose more market share, added supply would further weigh on prices,” said Mano.
“All else equal, this would drive fuel prices lower.”
An opposite swing factor would be if effected policies in the US are more benign than currently feared, which could be supportive to both oil prices and the rand, especially if initial market reactions are overdone.
“Having a similar effect would be an escalation of geopolitical tensions in the Middle East, which could be a catalyst for a higher risk premium on oil prices, but the overall impact will depend on the outlook for supply and demand balances,” said the economist.
In the best-case scenario, petrol and wholesale diesel prices could be below R20 per litre come this time next year.
“Since diesel is more exposed to the extent of broader economic activity, weak global growth should continue to weigh more heavily on its prices,” said Mano.
In the worst-case scenario, petrol and wholesale diesel prices could be above R25 per litre, closer to the peak experienced in 2022.
“With so much volatility in the market, it is important to note that these are just likelihood scenarios,” emphasised the economist.
When thinking about local fuel prices, it is also important to consider the impact of global refinery margins.
In the aftermath of the post-pandemic cyclical recovery, there were several disruptions to refinery capacity that resulted in soaring margins.
These margins have since softened, but any new disruptions to capacity could lift internation product prices.
In the same breath, more capacity coming online at a time when demand may be weak could have the opposite effect.
Another factor to consider is government efforts to reform the pump price calculation.
“While we await further information on this, whether it will be a recalibration of the taxes or more price liberalisation, the reform is intended to lower the cost of fuel,” concluded Mano.
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