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Fuel price cut on the cards

By Ethel Hazelhurst Time of article published May 28, 2012

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Grim news abroad has had some positive spin-offs at home. On Friday motorists will learn that the petrol price will fall next week, possibly by more than 50c a litre.

This follows a cumulative hike over the past three months of R1.61, a figure that included the impact of new fuel levies.

Fuel prices are adjusted each month to bring them in line with the latest trends on global oil markets as well as movements in the rand exchange rate.

The price of Brent crude oil has fallen from $119 a barrel at the start of the month to around $107 on Friday, taking pressure off the cost of imports.

Next week’s cut in the petrol price would be even bigger if not for the struggling rand.

The local currency has weakened from R7.7 to the dollar at the start of the month to trade at nearly R8.40 at 5pm on Friday.

Currencies and commodity prices are responding to renewed fears that the problems in Greece will have a domino effect in the euro zone and beyond, and also to concerns that China’s growth is slowing, reducing its demand for commodities.

Oil prices started the year with a sharp run-up. Benchmark Brent crude surged from just over $100 a barrel early in January to a high of $124 in the middle of March.

Then, as problems in the global economy started to surface and some supply concerns were resolved, the oil price started its slide. And it could fall further.

A survey of analysts by Bloomberg last week showed most expected weaker oil prices “as rising US inventories outpace demand”. The US Energy Department said US stockpiles were at the highest level since August 1990, Bloomberg reported.

However, other global developments also affect the price of oil. A sign that Germany may take a softer stance on austerity in Europe could boost sentiment on the immediate growth outlook and healthier demand for oil. So the predicted further fall may not materialise.

Meanwhile, the recent slump is feeding through into other prices and taking the heat off inflation. Unfortunately, the same problems that are depressing the oil price are weighing on the local economy.

Both China and Europe are major export markets and their problems, though of a very different order, are blighting South Africa’s export outlook.

Sales of local goods to China are still growing, up 9 percent in the first three months of the year, to R20.8 billion, compared with the same period last year.

However, this is a much slower rate than the growth of 45 percent between the first quarter of 2010 and the first quarter of last year.

And exports to Europe in the first three months of the year are virtually unchanged from the previous year’s first quarter at just under R37bn.

Another fallout from the uncertainty in Europe is rising risk aversion.

Global investors are shifting funds to what they perceive as safe havens in the developed market. The outflows are undermining the currency and at current levels, the exchange rate will boost inflation.

Rising inflation could bring forward the upward turn in the interest rate cycle.

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