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Petrol price cut likely to be trimmed by a weaker rand

THE Department of Mineral Resources and Energy is expected to publish the official petrol price on or before tomorrow. Picture: Karen Sandison, ANA.

THE Department of Mineral Resources and Energy is expected to publish the official petrol price on or before tomorrow. Picture: Karen Sandison, ANA.

Published May 3, 2022

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THE weakening rand/dollar exchange rate has wiped out chances of a reasonably substantial cut in the petrol price tomorrow, even though oil prices have moderated.

Central Energy Fund data released last week showed the average over-recovery on 95 octane unleaded petrol was 14.96 cents per litre, meaning petrol prices might be reduced by this amount, but for diesel there was an under-recovery of 94.7 cents per litre, indicating motorists will pay more for diesel.

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While these costs will be offset by the government’s R1.50 per litre fuel price intervention, motorists hoping for a substantial drop when the prices are adjusted tomorrow after months of increases, might be in for a disappointment due to the rand’s softening stance.

At mid-April, petrol was set for a 34 cents per litre decline, and diesel prices were in line for a 67 to 71 cents per litre increase. The weakening rand was also a big driver behind the fuel price over-recovery reducing.

At the end of March, Finance Minister Enoch Godongwana said the government would temporarily reduce the general fuel levy (GFL) included in the Basic Fuel Price by R1.50 per litre between April 6 to May 31, 2022.

The Department of Mineral Resources and Energy is expected to publish the official petrol price on or before tomorrow.

Last month saw a relatively mild petrol price increase of 36 cents per litre as the price was shielded by the R1.50 per litre cut in the fuel levy, with diesel prices up by just more than R1.50 per litre instead of around R3 per litre, as the cut in the levy protected motorists from the brunt of high oil prices in March.

Investec chief economist Annabel Bishop said in a note on Friday that with a R1.50 a litre cut in the fuel levy still operational for May, the petrol price cut could come closer to R2.00 a litre, which would have a suppressing effect on inflation after April’s heady increases.

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Since March, the oil price had dropped to around $105 (R1581) per barrel (/bbl), averaging $105.6/bbl or R1 580/bbl versus March’s R1 679/bbl ($112/bbl), and so yielding a likely cut of R15c/litre in South Africa’s petrol price (94.5c/litre for diesel) from these metrics, said Bishop.

The price was last at $106.03 per barrel at the weekend.

Bishop said a marked easing in the fuel price, if sustained could see a lessening in South African Reserve Bank inflationary concerns, although an interest rate hike is still likely at the next MPC meeting of between 25 basis points to 50 basis points, depending on the momentum of prices in the interim.

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The Russian/Ukraine conflict has pushed up the oil price from the start of the war on February 24, and particularly over March, with a high of $128/bbl in the month, exceeding 2013’s $119/bbl, and 2011 and 2012’s highs of $127/bbl.

Bianca Botes, a director at Citadel Global, said on Friday that the rand was currently testing a “sustained break above the R15.70 per dollar mark, its lowest levels since January 6, with the potential to weaken to R15.85 to the dollar.

“Its range, for now, is between R15.55/$ and R15.85/$, as the pace of weakening starts to lose momentum,” Botes said.

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On April 1, the rand closed at R14.59 to the dollar. It was trading at R15.83 per dollar just after midday Friday, indicating a more than 7.5 percent devaluation in the local currency. The rand was last seen trading at R15.81 per dollar at the weekend.

Factors cited by analysts that were causing the rand to weaken included load shedding, flooding in KwaZulu-Natal, inflation, dollar strength and the slipping commodity prices.

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BUSINESS REPORT ONLINE

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