Johannesburg - Oil sank to six-month lows on Monday to below $50 (R635) a barrel for the first time in six months, making it conceivable that petrol prices in South Africa could decline further after the 51c per litre drop effective from last night.
Azar Jammine, the chief economist at Econometrix, said the drop would result in a reduction of 3.6 percent in the year-on-year petrol inflation rate, lopping minus 0.2 percent off the overall consumer inflation rate.
He said following the steep decline in oil prices recently, the petrol price could be reduced by a further 36c per litre in September if the existing oil price and rand/dollar exchange remained unchanged.
Commodity markets are under pressure currently, with South Africa’s largest commodity exports in the midst of this.
The Gold index dropped 2.4 percent to 755.74 points at 9.27am yesterday, while the Platinum Mining index slipped 1.7 percent to 20.72, the lowest since May 2003.
Oil prices have fallen from a peak of $120 a barrel last year.
Global oversupply
The latest dramatic drop was largely due to evidence of growing global oversupply and a stock market collapse in China, the world’s largest energy consumer.
Brent crude oil denominated in rand was now trading at levels last seen in early February, said Standard Bank in a research note.
The rand recovered some lost ground against the dollar yesterday but remained vulnerable ahead of US jobs data on Friday.
It was trading at R12.6557 against the dollar at 5pm.
The rand has dropped nearly 10 percent against the dollar this year, hitting a low of R12.77 last week as investors dumped emerging market assets in anticipation of a rate hike in the US next month.
The Reserve Bank raised the benchmark repo rate by 0.25 percentage points to 6 percent last month in this anticipation.
“The current slide in crude oil, and the accompanied weak growth outlook, would be consistent with our current repo rate outlook, which sees the Reserve Bank remaining on hold for the rest of 2015,” Standard Bank said.
Expenditure
It said the market seemed to be shifting expectations to a December Federal Reserve rate hike rather than September.
“Our G10 analyst Steve Barrow points out that a number of developments occurred in the last week or so in the US, indicating a December lift-off from the Fed. Of course, there are a few data releases and policy speeches left to go until the September 16-17 meeting, but unless any of these produce produce significant (hawkish) surprises, it’s best to assume we are looking for a December lift-off, “ said Standard Bank.
Standard Bank said among the factors that had made it nervy of the September call in the last week or so had been the Fed’s post-meeting statement, gross domestic product revisions, the fall in commodity prices and the employment cost index data last Friday.
Jammine said that the drastic fall in the oil price presages a possible further reduction in the fuel price in coming months.
In turn, this should provide some respite for consumers by raising the amount of money available for expenditure after fuel costs are taken into account.
BUSINESS REPORT