Economists and economists say South Africans may expect a significant drop in gas prices next week, with prospects looking excellent for the rest of the year.
According to month-end figures from the Central Energy Fund (CEF), petrol prices are expected to fall by roughly R1.09 per litre in October, with diesel projected to fall by the same amount (R1.10 per litre).
The price decreases would be the seventh consecutive decline since May and would be approximately R4.60 per litre lower than the same time last year.
This considerable over recovery is due to a stronger rand in September and lower global oil prices, both of which benefited motorists and are expected to continue doing so.
The Bureau for Economic Research (BER) stated on Friday (September 27) that the ongoing strength of the rand exchange rate and the additional drop in the Brent crude oil price had been more favorable for local inflation.
This has manifested itself most prominently in lower fuel costs, “with another significant drop expected next week,” it stated.
Oil prices, in particular, have dropped significantly, with the BER citing indications that Saudi Arabia is willing to relinquish its unofficial price target of $100/bbl and increase production to recapture market dominance.
Brent crude traded around $72 per barrel and is down roughly 3.5% this week.
Although OPEC+ production cuts helped to keep prices high, the Bank of England (BER) reported that large increases in non-OPEC supply (the US) and decreased demand from China offset this.
This is also reducing forward pricing for oil, but with the caveat that risk factors are still very much present in the market, which could cause things to change.
One of the most significant threats is geopolitical tensions in the Middle East.
“After the ‘pager attacks’ earlier this month, Israel resumes its bombing campaign on Lebanon. “The strikes have resulted in an increasing death toll and civilians fleeing the area,” the BER stated.
“Following reports that Israel was preparing for a ground offensive in Lebanon, international calls for a ceasefire between Israel and Hizbollah intensified, with the hope that a (temporary) truce reached there could also aid discussions around Gaza.”
Another risk aspect is the Chinese economy.
The Asian nation has missed expectations, lowering demand for oil. While China released a flurry of monetary and fiscal stimulus measures this week, aimed at boosting equities and commodities, their effectiveness is dubious, according to Bloomberg.
Meanwhile, the rand has strengthened, reaching as low as R17.11 this week, owing to favorable sentiment surrounding the Government of National Unity and a steeper-than-expected rate-cutting cycle in the United States, which benefits the rand.
Earlier this month, the US Federal Reserve slashed interest rates by 50 basis points, followed by a 25-basis-point decrease in South African rates.
This increased the US/ZAR currency disparity (a positive for the rand), while simultaneously providing relief to South African households and increasing predicted consumer spending.
While the rand is not expected to reach its ‘fair value’ of R15 per dollar anytime soon, some analysts believe it is conceivable in the long run if economic reforms are implemented and global sentiment remains favorable.
Regardless, a significant petro and diesel price decrease for South Africa is all but guaranteed for October, with the Department of Petroleum and Mineral Resources set to announce the official modifications in the coming days.
The revised prices will take effect on Wednesday, October 2.