Big drop in petrol prices expected for South Africa in December

South African holiday-goers can expect a welcome drop in fuel prices this December.

Mid-month fuel price data published by the Central Energy Fund (CEF) indicates that petrol prices could fall by as much as R1.07 per litre on the first Wednesday of next month, with diesel prices potentially coming down by a more substantial R2.14 per litre.

These expected changes are a result of a recovery in international oil prices as well as the rand/US dollar exchange rate through the month of November.

The going rate for Brent Crude oil sat at $84.63 per barrel on 1 November and sank to $82.47 per barrel by the 14th, shaving off anywhere from 74-75 cents per litre from the price of petrol and 173-178 cents per litre from diesel.

The exchange rate of the local currency against the greenback complemented this downtrend in oil prices.

The rand started November at an average of approximately R18.80/dollar, moving into the region of R18.60/dollar over the past two weeks. In turn, this led to an over-recovery in fuel prices of between 31 and 36 cents per litre.

According to these factors, fuel prices in South Africa this December are expected to be adjusted as follows:

• Petrol 93 – Decrease of R1.05 a litre
• Petrol 95 – Decrease of R1.07 a litre
• Diesel 0.05% – Decrease of R2.09 a litre
• Diesel 0.005% – Decrease of R2.14 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.

Uncertainty lies ahead

While oil prices have remained largely unaffected by Israel’s official declaration of war in October, RMB chief economist Isaah Mhlanga in a Sunday Times column said that the market just hasn’t come around to acknowledging the significant risks associated with the conflict spreading to other nations such as Iran, which is a major oil producer.

The current oil prices reflect a scenario in which the war is contained only to Israel and Palestine, however, Mhlanga said that this is not a true representation of the events as Iran is already involved as a backer of Palestine’s Hamas.

“I think markets are mispricing by assuming a confined conflict…oil and the broader market are not pricing this currently… a direct conflict between Iran and Israel will imply a shock to oil markets well above $130 a barrel,” he said.

This would have a catastrophic effect on fuel prices and could see them sore to new record highs around the globe.

However, as the Middle East conflict has been ongoing for several years and was only recently declared a “war” there are other factors that are deemed equally important in terms of affecting oil prices, such as lower demand from China, high interest rates, and the risk of recession in the United States.

In most analyses, the conflict in the Middle East is flagged as a “short-term” concern, said Mhlanga. Therefore, analysts expect that oil prices will look better at the end of 2024 than at the end of this year, provided the war does not expand.

“The risk is if the Middle East war expands across the region and directly involves Iran. In that case, these assumptions might be turned upside down, resulting in a global recession,” he said.