Data from the Central Energy Fund for the middle of the month show that in September, motorists may experience a significant reduction in the prices of gasoline and diesel fuel.

Data, which provides a snapshot of market conditions as of August 12, 2022, shows that the price of gasoline may decrease by 2.60 liters next month, while diesel is showing an over-recovery 2.30 rubles per liter.

The mid-month snapshot looks like this:

  • Gasoline 95: over recovery /decrease 260 cents per liter;
  • Gasoline 93: over recovery /decrease 244 cents per liter;
  • Diesel 0.05%: over recovery /decrease 230 cents per liter;
  • Diesel 0.005%: over recovery /decrease 225 cents per liter;
  • Illuminating paraffin: over recovery /decrease 193 cents per liter.

This was emphasized in the Ministry of Energy daily snapshots are not predictable and do not cover other potential changes, such as fee adjustments or retail margin changes, which are determined by the department at the end of the month taking into account all variables.

DoE makes adjustments based on a review of the entire period. Moreover, by the end of the month, the forecast may change significantly.

Expected price changes depend on the current market conditions, which will persist until the end of the month. Notably, even if these changes take effect, fuel prices are still significantly higher than they were in February, before the impact of Russia’s invasion of Ukraine was felt on global markets.

Fluctuations in local fuel prices are influenced by two main factors – the international price of petroleum products, driven mainly by oil prices, and the rand/dollar exchange rate used to purchase these products.

During the first two weeks of August, oil prices remained below $100 per barrel, contributing to a significant overshoot in local prices. This was supported by a stronger rand against the dollar, which also contributed to the over-recovery, albeit to a much smaller extent.

Oil prices

Oil has been subject to a flurry of both bearish and bullish headlines in recent days. Still, cooling inflation, which could weaken the pace of interest rate hikes by the Federal Reserve, generally supported commodities, according to Bloomberg.

Brent crude was trading around $97 a barrel on Monday morning.

Crude oil has fallen over the past couple of months on concerns about a slowing economy, losing any gains made since Russia’s invasion of Ukraine. According to the Commodity Futures Trading Commission, money managers have cut bullish rates on oil to a two-year low.

“Renewed Covid lockdowns in China are weighing on demand on top of recessionary worries, while supply concerns are melting away,” said Vandana Hari, founder of Singapore-based Vanda Insights. The prospect of the return of supplies from Iran is adding to bearish sentiment, she added.

China’s economic recovery unexpectedly weakened in July as new outbreaks of Covid-19 weighed on consumer and business spending. Industrial production grew by 3.8% compared to last year, which is lower than June’s 3.9% and does not meet economists’ forecast of 4.3% growth. Oil refining also fell as plants were shut down for maintenance.

The forecast for the oil market remains ambiguous. The International Energy Agency has raised its forecast for global demand growth this year, while OPEC expects the market to move into surplus this quarter.

Exchange rate

For months, the rand has been working against local fuel prices, with its weak market position reducing the benefits of lower global oil prices.

While the rand has had plenty of local challenges to contend with – prolonged load shedding, water shortages and the Reserve Bank’s 75 basis point interest rate hike – its movement has been largely dependent on global markets, particularly in relative to the dollar.

The dollar rose at the end of July after the US Fed rate hike of 75 bps. showed her aggressive stance on inflation. However, the latest signs are that interest rates are reaching their peak, softening the dollar.

The Bureau of Economic Research (BER) said the recovery was a market correction.

“Global financial markets adjusted somewhat after the initial risk reaction following the CPI release as several US Fed chiefs warned that inflation remained too high and that one better-than-expected data indicator would not change the short-term path of policy tightening,” it said.

The rand benefited from a weaker dollar and a risk rally last week, rising sharply to 16.20 rand per dollar on Friday – its highest level since June 28 – after hitting a high of 16.11 rand per dollar during Thursday’s trading. During the week, the rand rose by more than 3% against the dollar.

According to Bianca Botes, director of Citadel Global, however, the rand remains dependent on the wider global environment and any shift in sentiment could send the currency lower again.

At the moment, the relatively higher rand is helping to restore local fuel prices by 25-30 cents per litre.

Here’s how the expected price changes at the pumps could affect you:

Internal Official August September Expected
95 Gasoline 25.42 rand 22.82 rand
93 Gasoline 24.99 rand 22.55 rand
0.05% diesel fuel (wholesale) 24.52 rand R22.22
0.005% diesel (wholesale) 24.62 rand 22.37 rand
Illuminating paraffin 18.42 rand 16.49 rand
Coastal Official August September Expected
95 Gasoline 24.77 rand R22.17
93 Gasoline 24.34 rand 21.90 rand
0.05% diesel fuel (wholesale) 23.87 rand 21.57 rand
0.005% diesel (wholesale) 23.98 rand 21.73 rand
Illuminating paraffin 17.63 rand 15.70 rand

Read: Big petrol price cut in South Africa in September: The Economist

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