Expect some fuel price relief in September

Month-end data from the Central Energy Fund (CEF) shows an over-recovery in fuel price adjustments, which points to a slight drop in prices at the pumps next week.

The CEF data shows an over-recovery of between 11 and 15 cents per litre and petrol and 24 cents per litre for diesel. The price drop is anticipated across all types of fuel:

• Petrol 95: decrease of 11 cents per litre;
• Petrol 93: decrease of 15 cents per litre;
• Diesel 0.05%: decrease of 24 cents per litre;
• Diesel 0.005%: decrease of 24 cents per litre;
• Illuminating Paraffin: decrease of 16 cents per litre.

Fuel prices are officially calculated and adjusted on the first Wednesday of every month by the Department of Mineral Resources and Energy.

September fuel price changes will come into effect on Wednesday (1 September), with the department gazetting the official changes sometime before then.

The daily fuel price adjustments are not necessarily reflective of the final change, which can also be affected by things such as the slate levy. In August, slate levy adjustments added 7 cents per litre to prices.

Petrol prices have been most affected by the changes in international product prices during August, contributing to 24-36 cents per litre to the over-recovery. Volatility in the rand exchange rate to the dollar over the last few weeks has contributed to an under-recovery in prices around 12 or 13 cents per litre.

Exchange rate and oil prices

The rand/dollar exchange rate has been dominated by sentiment around the United States Federal Reserve in August, with problems brought about by the delta variant in various economies also playing a big role.

While local news, such as the record-high unemployment rate and the rebasing of South Africa’s economy to 2015 rates, have had an impact, most investors and traders are more interested in the Fed’s signals on the much-debated tapering of asset purchases and the raising of interest rates in the US.

According to Citadel Global, this has broadly fed into the local exchange rate with the US’s high levels of quantitative easing – through asset purchases by the Fed, as well as low-interest rates –  leading to emerging markets benefiting substantially from the excess liquidity due to the fact they offer higher yields to investors.

“Over the past week, since the announcement by the Fed that tapering may start this year already, we saw many emerging market currencies impacted, with the South African Rand reaching lows of R15.28 to the dollar,” it said

Citadel said the tapering of asset purchases and the increase in interest rates in the US, will in essence drive the US dollar higher and reduce the excess ‘cheap money that finds its way into emerging markets and other riskier assets.

Oil, meanwhile, has had a volatile August with the fast-spreading delta variant of the Covid-19 virus leading to renewed restrictions on mobility and clouding the outlook for fuel demand, Bloomberg analysts said.

However, month-end petroleum product prices have returned to mid-month levels following a dip last week.

Oil markets have been given a major boost on the back of Pfizer-BioNTech’s Covid-19 vaccine being fully approved by the US Food and Drug Administration (FDA). Prices have also seen a spike in demand due to stock pressures arising from fires and storms in Mexico.

Markets have also been buoyed by China’s containment of its latest Covid-19 outbreak. Brent traded near $71.80 per barrel.