South African motorists could see a huge drop in petrol and diesel prices in January 2023, with a major drop in global oil prices and a relatively stronger rand working in consumers’ favour.
According to the latest weekly forecast from the Central Energy Fund, for the week ending 9 December 2022, petrol prices are anticipated to come down by over R1.50, while diesel could be cut by a much larger R3.50.
These are the forecast changes for the new year:
- Petrol 95 and 93: decrease of R1.53 per litre
- Diesel 0.05%: decrease of R3.46 per litre
- Diesel 0.005%: decrease of R3.52 per litre
- Illuminating paraffin: decrease of R2.27 per litre
The daily snapshot – which gives a quick glance at market conditions on a given day, shows that things are looking even more positive, with petrol prices moving towards an R1.89 per litre drop, which diesel slightly lower at R3.40 a litre.
The main driver behind the lower projected prices is a huge drop in the international product prices for petroleum, which are guided by global oil movements.
Global oil prices have continued to drop significantly, with the spot price of brent crude currently around $76 a barrel, from $87 a barrel at the end of November and even higher earlier this year.
Oil markets have been pelted by several key moves so far this month, all of which support ample supply – thus driving prices downward.
According to Bloomberg, crude oil remains on track for its first back-to-back quarterly decline since mid-2019 as the demand outlook sours and thin liquidity exacerbates price swings into the year-end.
“Investors are also weighing the fallout from the $60-a-barrel price cap imposed by the G7 (Group of Seven) and European Union on Russian crude to punish Moscow for the Ukraine invasion,” it said.
Some events are supporting a case for greater oil demand – such as crucial North American pipelines being shut and Chine slowly moving away from its zero-Covid policies – however, these are not enough to reverse the trend.
Additionally, a surge in Covid cases in China is spurring concern about consumption over winter, with industry consultants saying that the sudden lifting of restrictions in the country could pose downside risks for oil demand.
Rand strength
Meanwhile, the South African rand continues to trade favourably against the US dollar, despite volatility and weakness due to ongoing political uncertainty.
The rand was trading below R17.00 to the dollar two weeks ago before a parliamentary panel released findings saying president Cyril Ramaphosa may have a case to answer for in impeachment processes.
The news, coupled with speculation that Ramaphosa would resign as a result, sent the rand into a tailspin last week before clawing back some of its losses when the president announced he was sticking around and would challenge the report.
However, uncertainty persists, with the African National Congress heading into election territory and Ramaphosa’s future as the leader of the party not guaranteed.
Despite the rand’s weaker position relative to late November, the unit is still far stronger than the R18.50 position it held in prior months. Local load shedding at level 5 hasn’t shaken the currency much, given that unstable power is largely priced into the market, while stronger-than-expected third-quarter growth has lightened sentiment.
Globally, sentiment is also shifting on interest rate hikes – one of the key factors impacting the rand this year.
According to the Bureau for Economic Research, the final review of 2022 will also focus on Wednesday’s US interest rate decision, the accompanying statement and the Q&A session with US Federal Reserve (Fed) chair Jerome Powel.
“The Fed is largely expected to slow down the pace of rate hikes with a 50bps hike pencilled in following four consecutive 75bps hikes. The European Central Bank (ECB) and the Bank of England (BoE) are also expected to move from 75bps hikes to a 50bps increases (on Thursday),” the group said.
This signifies a less hawkish position at international central banks, which favours a risk-on environment that typically benefits emerging markets like South Africa. If local politics does not sour the pot, things can improve further heading into the second half of December.