Fuel price cuts in the pipeline as rand rallies, oil slips
JOHANNESBURG – Fuel price reductions may be on the horizon for South Africans at month end, according to the Automobile Association (AA), which was commenting on unaudited mid-month fuel price data released by the Central Energy Fund (CEF).
The AA cited the rand’s recent rally against the US dollar. On Monday the domestic unit strengthened against the US dollar, as concerns over the rising number of Covid-19 cases in the US put pressure on the greenback.
"The rand has put on a remarkable rally against the US dollar in recent weeks, with the daily exchange rate strengthening from R17.30 on August 21 to R16.70 on August 31 and since the start of September, the rand has traded in a commendably tight range by recent standards," says the AA.
The domestic unit started the day at a steady R16.62 a dollar, R19.75 to the euro and R21.35 to the pound.
Bianca Botes, executive director at Peregrine Treasury Solutions said more sideways trading could be expected from the rand as the market awaits the three big central bank events this week, with the market dynamic little changed.
At the same time the rand was advancing, international oil prices were beating a retreat, with the landed price of refined fuels in South Africa slipping by more than 10 percent since September 1.
Oil producers have lowered their demand forecasts for the year, and the oil price remains stuck below the $40 level. West Texas Intermediate (WTI) was quoted at $37.26 and Brent crude at $39.58 this morning, according to TreasuryONE’s Market Data Report.
“This all adds up to a promising picture for fuel users, with the data currently showing petrol lower by between 26 and 36 cents a litre, but diesel down by a whopping 88 cents, with illuminating paraffin also showing a healthy 83-cent drop,” said the AA.
The AA, however, cautioned that oil prices would likely continue to see-saw as world oil demand and supply gradually re-balanced following the turbulence of the initial lockdown period of March to June.
The Association said it was usual at this time of year for the impending Northern Hemisphere winter to start driving demand for heating fuels, meaning pressure on refining capacity for fuel oils, including diesel.
“However, the seismic shock that Covid-19 has dealt to the world’s economy, along with high stock levels, might mean the increased winter demand for heating fuels may not be enough to translate into substantial diesel price increases,” said the AA.
The Association said a period of further oil price and rand stability would give a much-needed breather to South African fuel users.