Great news for petrol and diesel prices next week

The fuel price in South Africa has swung into a solid over-recovery despite the last three months being deep in the red.

This is based on month-end data from the Central Energy Fund (CEF), which showed that petrol and diesel prices are squarely back in the black.

Petrol prices are showing an over-recovery of 42-46 cents per litre, and diesel is showing an over-recovery of R4.93-R5.57 per litre.

Below are the recoveries for fuel prices at month-end:

• Petrol 93 – decrease of 46 cents per litre
• Petrol 95 – decrease of 42 cents per litre
• Diesel 0.05% (wholesale) – decrease of R5.57 per litre
• Diesel 0.005% (wholesale) – decrease of R4.93 per litre

However, while this would be cause for celebration under normal circumstances, the end of the government’s temporary fuel price relief will also factor into the equation.

From 1 June, the National Treasury will reintroduce at least 50% of the R3.00/R3.93 per litre fuel levy it cut in April and May to shield motorists from further hikes.

Consequently, the petrol price recovery will be undercut by R1.50 per litre and be pushed back into a hike.

Things are more positive for diesel, with its over-recovery able to absorb the reintroduction of R1.97 per litre, indicating a price cut rather than a hike.

The table below shows how June fuel prices could be affected by the return of the fuel levies.

These predictions do not include any additional levies which may come into play, such as was the case in May with the slate levy.

The price adjustments will be implemented from Wednesday, 3 June, with the Department of Mineral and Petroleum Resources announcing the official changes before then.

Positive outlook

Fuel prices have seen significant reversals relative to market stability, even with the global oil price on the wrong side of $100 for the bulk of the month.

Prices have also been under considerable strain following the United States’ war with Iran hitting a stalemate and the effective closure of the Strait of Hormuz.

The closure of the Strait of Hormuz due to the war has caused a global energy shock, with billions of barrels of oil no longer reaching their destinations.

However, prices fell sharply on Thursday after the US and Iran tentatively agreed to extend a ceasefire by 60 days, and there is hope that trade through the Strait may resume soon.

This has resulted in oil prices dropping toward $92 a barrel, down 19% this month.

President Donald Trump has yet to agree to the terms of the agreement, according to a person familiar with the matter, after Axios reported that shipping through the strait would be “unrestricted.”

However, even if the Strait is reopened, Bloomberg analysis has noted that multiple hurdles remain that could impede the resumption of oil flows.

This includes mines in the Hormuz waterway that must be removed, shut-in fields that may take months to restart, and damage to energy infrastructure from drone and missile strikes that needs to be repaired.

Additionally, it would take several more weeks for new ships to reach importing nations.

In terms of the Rand, the unit was stronger following the Reserve Bank raising interest rates by 25 basis points – a largely expected move that widened the rate differential between South Africa and the US, boosting the Rand.

This also makes South Africa one of the few emerging markets to have a tightened policy amidst the war.

The Reserve Bank noted the move was needed to bring inflation back to target after it accelerated in April.