Despite the government’s efforts to extend petrol price relief, South Africa and much of the rest of the world face the possibility of continued petrol price hikes in the coming months as global oil issues continue, say economists.
Crude supplies are likely to remain tight amid limited spare capacity among producers, said investment bank UBS in a research note on Wednesday (15 June).
“Recent protests in Libya have dragged down the country’s oil production by more than 1mbpd from its earlier peak, while the pause in nuclear talks between Iran and major nations suggests additional Iranian oil barrels are unlikely to return this year.
“Meanwhile, the recent pledge from OPEC+ to step up production is unlikely to result in any material increase in output, as many countries in the group are already struggling to meet existing targets.”
The EU’s ban on Russian oil imports, though staggered, will also worsen the long-term structural imbalance in global oil supply, the bank said.
“So we maintain our positive outlook on oil and energy equities. We have lifted our forecasts for Brent to $130/bbl by end-September, and to $125/ bbl for the subsequent three quarters, up from our previous forecast of $115/bbl over this period.” At 12h20 on Wednesday (15 May), Brent was trading at a spot price of $119.72/bbl.
South Africa’s local petrol prices have also not been helped by a tumultuous rand, which has slipped in the last week on expectations of further rate hikes in the US and the possibility of a global recession.
“In South Africa, the rand is at risk of further marked weakness as the differential between South African and US interest rates are eroded on the US interest rate hike this month, which would add to fuel price pressures, as rand weakness increases the rand oil and petroleum product prices,” said Investec chief economist Annabel Bishop.
She noted that the current fuel price increase forecast in South Africa is for another R2.00/litre hike in the petrol price in July, to R26.18/litre, the highest petrol price South Africa has ever experienced, while the diesel price is set to rise by R1.18/litre, taking it to R24.27/litre, again unprecedented.
“Petrol prices in South Africa are around double what they were about two years ago, and unsurprisingly inflation is more than double as food cost inflation has increased substantially as well, while second-round price effects are building, and the SARB warns against a wage/price spiral. ”
Adding to the pressure is the end of fuel price interventions announced by the government in March. Fuel prices in July will see R1.50 kept off the general fuel levy. In August, this will be reduced to 75 cents per litre as the other 75 cents are added back.
Read: Here is the expected petrol price for July