The domestic currency market weakened slightly yesterday as South Africa’s energy crisis continued while the announced increase in global crude oil output in September failed to allay investors’ uncertainty over the pace of US rate hikes.
Opec and its allies (Opec+) yesterday agreed to raise oil output by only 100 000 barrels per day in September.
The recommended increase misses market expectations after US President Joe Biden visited Saudi Arabia last month and called on the Opec+ cartel to pump more crude in a bid to ease high energy prices in the US and Europe.
The 31st Opec and non-Opec ministerial meeting noted with particular concern that insufficient investment into the upstream sector would impact the availability of adequate supply in a timely manner to meet growing demand beyond 2023.
Biden has been speaking about the importance of addressing current global energy insecurities and managing energy price pressures by ensuring a steadily increasing supply, including through increasing investments in refining capacity.
This comes in the context of rising US-China tensions following US Speaker Nancy Pelosi’s visit to Taiwan this week.
Exinity Group chief market analyst Han Tan said ramping up production in September could weaken already falling oil prices as the Brent crude touched $98.60 per barrel yesterday.
“An escalation in US-China tensions that further sours risk appetite should also weaken the floor below oil prices, amid persistent fears over a global recession,” Tan said.
The rand galloped to R16.90 against the US dollar yesterday after kicking off the August month around R16.50/$1, stronger than a two-year low touched in late July, benefiting from a weaker dollar.
The rand is very sensitive to shifts in global market sentiment as the country battles with rolling blackouts, weak economic growth in addition to growing global recession fears.
The rally on the rand was switched off by Eskom reintroducing its rotational power cuts after more than a week of sustained electricity supply.
Eskom yesterday implemented Stage 2 load shedding during the evening peak period and will do so again today due to a shortage of generation capacity and unplanned outages.
The struggling utility had 2 931MW on planned maintenance, while another 15 051MW of capacity was unavailable due to breakdowns.
Analysts said there had been mild rand and bond weakness on comments from some US Federal Reserve members who have been highlighting the resolute focus on inflation.
Investec chief economist Annabel Bishop said yesterday that US Federal Reserve chair Jerome Powell had also highlighted this last week and markets were still digesting the latest Fed communications, causing some mild volatility.
“There is likely to be volatility in both the bond market and in the rand’s movements as traders try to second-guess the Fed through this month and over most of next,” Bishop said.
“For South Africa, the Federal Open Market Committee move next month will likely determine that of the Monetary Policy Committee on 22nd September.”