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Good news for petrol prices in South Africa

South African fuel prices were hiked once again this February, with petrol going up by 75c/litre across the board and diesel by as much as 73c/litre.

Petrol now retails for upwards of R23/litre at inland rates, while diesel is going for R21.36/litre and up, rates last seen in December 2023.

Fortunately, these heightened price levels should subside the further we go into the year, according to Johann Els, Old Mutual Group Chief Economist.

Speaking to SABC News, Els said that Old Mutual is expecting to see lower inflation and consequently lower interest rates in 2024, which should see fuel prices gradually decline throughout the year.

The rising fuel costs are largely attributed to conflict in the Middle East that has hamstrung the movement of Brent Crude oil throughout the world, coupled with freezing temperatures in the USA that have similarly had a negative impact on the production of WTI Crude.

While these risks remain a factor in 2024, Els said there should be a slowdown in the global economy and therefore lower demand for the black gold, which will lead to reduced oil prices and a lower basic fuel price.

On top of that, it is widely expected that the USA will slash interest rates later in the year and that the dollar will remain stable, and perhaps even devalue, which will create an environment in which the rand can regain purchasing power.

“The combination of a stable to slightly stronger rand, and stable to slightly lower oil prices, should mean that we should look forward to lower petrol prices during the course of this year,” said Els.

“Perhaps not significantly lower, but lower nonetheless, and that will feed through into that lower inflation that we expect… which will allow for lower interest rates.”

The big risk

The “big risk” to fuel prices is whether conflict in the Middle East will expand beyond the current geographies, in which case, “all bets are off for the global economy, as well as for the South African economy,” said Els.

If a “blowout” occurs between the oil-producing nations, it will create upward pressure on oil prices that in turn will weaken the local currency thus resulting in higher fuel prices and inflation.

The probability of this scenario is fortunately still much lower than what the public believes, however.

“It’s not the base case, it’s a risk; and risk means it’s not the base case, it’s something we need to watch,” said Els.

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