South Africa Anticipates Fuel Price Drop Next Month

South Africa is set to see a decrease in petrol and diesel prices next month, influenced by the strengthening rand and the upcoming election, which could lead to a sharp decline in fuel costs.

Data from the Central Energy Fund (CEF) indicates an over recovery in petrol and diesel prices, suggesting a reduction in fuel prices. Throughout 2024, petrol prices in South Africa have risen steadily, with an increase in May, while diesel saw a slight decrease. However, recent developments in oil prices and currency strength are driving changes.

The latest data shows the following expected changes for June fuel prices:

• Petrol 95: Decrease of 61.45 cents
• Petrol 93: Decrease of 62.63 cents
• Diesel 0.05%: Decrease of 73.62 cents
• Diesel 0.005%: Decrease of 77.13 cents

Investment analyst Sithembile Bopela from FNB Wealth and Investments, along with senior economist Koketso Mano, have analysed the factors behind the potential further relief in fuel prices for South Africans in the second half of 2024. The drop in diesel prices can be attributed to a global decrease in demand, as diesel is primarily used for machinery and home heating. With the Northern Hemisphere entering summer, economic activity slows down, reducing the need for home heating.

Conversely, petrol prices typically see an increase in demand during the summer as more people drive. However, Bopela and Mano predict this effect will be minimal, and overall demand for petrol and diesel will decline, leading to lower prices.

Despite the price of Brent crude remaining high at around $75 a barrel since the beginning of the year, several factors will limit further price increases. These include global economic growth constraints, hawkish sentiments from the US Federal Reserve, and a large regional crude inventory build.

The oil market is expected to remain balanced throughout the year. OPEC+ output restraint is necessary to counter growing non-OPEC supply from the Americas. Even with slightly higher global growth forecasts, tighter monetary policy could stifle demand further.

The strength of the rand will be the most significant factor influencing petrol and diesel prices in South Africa. Bopela and Mano anticipate the rand will strengthen after the country’s election later this month, reducing political uncertainty and potentially leading to a more favourable market outlook.

This effect may be amplified by a positive election outcome. Recent weeks have shown a recovery in support for the ruling ANC, decreasing the likelihood of needing to form a coalition with other left-wing parties.