Petrol and diesel prices are expected to go up in South Africa this March, despite previous reports that fuel prices would experience a small over-recovery.
According to the latest report from the Central Energy Fund (CEF), the new increases are due to the recent surge in the international price of oil.
This is primarily the result of the United States’ preparations for military intervention in the Middle East, which is likely to disrupt oil supplies in the region.
At the same time, the rand’s strong performance against the US dollar these past months has begun to stall, as economists now believe that the currency is trading at its approximate fair value.
In other words, any future improvements to the rand’s value are likely to be temporary and it will default back to its current position.
Factoring in both of these variables, the CEF estimates that the following fuel price adjustments will now take place in March:
- Petrol 93 – Increase of 3c per litre
- Petrol 95 – Increase of 5c per litre
- Diesel 0.05% – Increase of 46c per litre
- Diesel 0.005% – Increase of 49c per litre
Escalating fuel prices
While the current petrol price increase is functionally meaningless, the concern now is that prices will continue to rise by the time the new fuel price adjustments take effect on the first Wednesday of March, just over one week from now.
This is because Brent Crude oil prices have continued to escalate past $70 per barrel, reaching a high point not seen in six months.
Oil prices have gone up more than 12% this month amid the USA’s actions in the Middle East, stockpiling military equipment in anticipation of a conflict with Iran.
The anticipated strikes on Iran are expected to disrupt a significant portion of the global oil supply, as the country produces more than three million barrels per day.
Most of this is exported to China to satiate the the nation’s relentless economic activity.
Relatedly, there are concerns that the conflict will close the Strait of Hormuz, a key channel where roughly 20% of the world’s oil supplies – 21 million barrels – flows through on a daily basis.
Iran has repeatedly threatened to close the Strait to container traffic and has conducted training exercises in the region.
In response, the United States has been rapidly expanding its presence in the region with military numbers not seen since the country invaded Iraq in 2003.
Over the same period, the US dollar has appreciated, weakening the rand’s trading value
While the rand was previously set to drop below R16 to the dollar, it is still trading at R16.02 as of the final week of February.
The dollar, meanwhile, is reporting its strongest week in four months as investors bet the Federal Reserve will hold interest rates, and the growing geopolitical tension pushes investment managers towards safer holdings.
The looming conflict between the US and Iran has also strengthened the dollar, as the currency’s value typically goes up during uncertain times.
The rand is unlikely to provide any relief either, as Standard Bank chief economist Goolam Ballim recently commented that the currency is trading at its fair value.
“At prevailing levels, with the rand below R16 to the US dollar at times, we do believe that it is trading at its fair value,” he said.
“The fair value of the rand, by our calculations, is in the vicinity of R16 to the dollar and R16.50 to the dollar.”
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