The slow down in fuel prices in South Africa could possibly be short-lived after global oil prices rose by 1.9% to above the $76-mark per barrel yesterday due to extended production cuts in August, and possibly beyond.
The markets were jittery yesterday after top oil exporters Saudi Arabia and Russia announced additional output cuts for Brent crude for August in a bid to boost prices, against signs of slowing global growth and weakening demand.
On Monday, Saudi Arabia announced that it would extend its voluntary cut of 1 million barrels per day to August, extending its June production cut in the hope of boosting prices.
Saudi Arabia, the world’s largest oil exporter, is counting on higher oil prices to finance an ambitious reform programme that could enable its economy to move away from fossil fuels.
Analysts estimate that the kingdom needs oil prices of $80 a barrel to balance its budget, well above the averages recorded in recent years.
Meanwhile, Russia also announced that it would cut crude exports by 500 000 barrels a day in August, following a 500 000-barrel-per-day cut in crude oil production announced in February.
This would bring the total amount of output cuts by Organization of the Petroleum Exporting Countries and their affiliates (OPEC+) members to 5.16 million barrels per day as the group of major producers aimed to bolster prices.
Russian Deputy Prime Minister Alexander Novak also announced Russia will reduce its oil exports by 500 000 bpd next month.
“As part of efforts to balance the market, Russia will voluntarily cut deliveries to oil markets by 500 000 barrels a day in August by reducing exports by this amount,” Novak said.
Oil producers remained under pressure as markets are worrying about low demand from key importer China, especially as Chinese manufacturing has slowed.
Since the start of the conflict in Ukraine, Russia has redirected its energy exports from Europe to India and China.
ActivTrades senior analyst Ricardo Evangelista said the news that the top two global exporters of crude were holding back on production supported the price of the barrel, but the gains were minimal.
“The bigger picture for oil traders remains one of uncertainty over the global economic outlook. This uncertainty is denting future demand expectations and generating strong resistance to price rises,” Evangelista said.
“Against this background, the impact of the output reductions has been subdued, with the outlook for oil prices remaining somewhat bearish.”
Meanwhile, locally, the price of petrol decreased between 17 cents and 24 cents a litre from today on the back of slowing Brent crude prices in June.
Although both grades of diesel will increase by 12 cents and 18 cents a litre, respectively, the retail price will be relatively lower than the petrol price as diesel will sell at less than R20 a litre and petrol at more than R22 a litre.
The Department of Mineral Resources and Energy (DMRE) said average Brent Crude oil price decreased slightly from $75.90 to $75.10 per barrel during the period under review.
The DMRE said the main contributing factors to the slowing fuel prices were recession fears and anticipated global economic slowdown, and OPEC and non-OPEC members’ decision not to increase oil production cuts during their last meeting, though the latter changed on Monday.
Trade union UASA spokesperson Abigail Moyo said they welcome the relief the lower petrol price will bring to motorists and commuters.
“We trust that the knock-on effect will help stem inflation and result in lower prices in public transport and associated costs in basics such as food, agricultural and manufacturing sectors,” Moyo said.
Meanwhile, the Congress of South African Trade Unions (Cosatu) and all its affiliated unions will be embarking on a nationwide socio-economic strike on Thursday, with marches taking place across major urban centres in all nine provinces.
Cosatu said this was a demonstration by workers that government needs to do more to end the current levels of load shedding, cable theft, crime and corruption, wasteful expenditure and austerity cuts crippling the state, suffocating the economy, and further plunging workers into high levels of indebtedness and misery.