South African motorists are in for some relief next month as the fuel price is expected to decrease.
The Automobile Association (AA) yesterday said that the petrol price would drop by up to 26 cents a litre, with a 20 cent drop for both diesel and illuminating paraffin. This is based on unaudited month-end fuel price data released by the Central Energy Fund.
The association noted that the rand had advanced against the US dollar during most of May, with further support from retreating international petroleum prices.
“Both of these factors have contributed to the reduction in the fuel price,” said the AA.
It said the Organisation of the Petroleum Exporting Countries’ decision to continue its production cuts for another nine months showed that there was concern in oil producing nations about a continued oversupply.
This could mean a period of relative price stability.
On the home front, the association said the background political noise affecting the rand continued to play a role.
“With political uncertainty set to continue, our medium-term outlook is that lower international petroleum prices will be key to maintaining local fuel price stability if the rand weakens again,” the AA said.
Reggie Sibiya, the chief executive of the Fuel Retailers Association, said the expected decrease brought much relief to their members.
“There tends to be more spending in terms of the number of litres people use when the price is lower, whereas if the petrol price goes up, people use the same budget, meaning they consume less.”
Dr Chris Harmse, the chief economist at Rebalance Fund Managers, said things were looking better for South Africa.
Over the past few years petrol and diesel prices had increased by less than the inflation rate.
“The contribution to the inflation basket is improving, and at this stage this may play a big role towards an interest rate cut towards the end of the year,” he said.
Harmse cautioned, however, that this reprieve may be reversed by a possible downgrade by Standard and Poor’s, as well as Moody’s.