South Africans may have been spared an interest rate hike this week, but the outlook for fuel and goods prices has definitely soured.
After almost two weeks of overnight US attacks on Iran, followed by Houthi rebel strikes on two Saudi oil tankers in the Red Sea this week, the oil price has shot up above $100 per barrel yet again.
This has contributed to an underrecovery – in other words, an expected increase – of about R1.10 per litre in the wholesale price of diesel with 0.05% sulphur, with only one of the five weeks left that will determine August’s fuel prices.
The expected hike reflects the average change in international fuel prices and the rand-dollar exchange rate in the four weeks up to Thursday, according to Central Energy Fund data, which is updated daily. It does not yet fully reflect the overnight weakening of the rand following the SA Reserve Bank’s surprise hold on the interest rate. In other words, the final diesel price increase for August may yet be higher.
An increase in diesel prices will filter through the economy on all levels – from production at farm and factory level, to public transport costs, to retail prices of all goods transported via road. In June, transport inflation was the biggest contributor to inflation shooting up to 5%. Without the fuel price increases, inflation would have been contained to only 3.3%, and possibly lower, considering that second-round effects may have set in.
Surprisingly, there is still an overrecovery – an expected decrease – of about 41c per litre in the price of 95-octane petrol. This is about half the overrecovery only a week ago, and might still shrink – or disappear – if the rand remains weak and oil prices remain high.
Diesel prices have been spiking by a larger margin than petrol and oil. As seasonal demand for diesel ramps up in the Northern Hemisphere summer, diesel refineries have been struggling to keep up. The impact of fuel supplies due to the Iran war has been exacerbated by a Russian ban on diesel exports after Ukrainian drone attacks on oil refineries.
The period determining August fuel prices ends on 30 July, and new fuel prices will come into effect on 5 August.
Two weeks ago, when the hope for a lasting peace agreement in the Middle East was high, the prospect of a cut of about R1.60 per litre on both petrol and diesel looked good.
From R16.44/$ at the start of the month, the rand is currently trading at R16.92.
The price of 95-octane petrol dropped by R2.01 per litre in July – the first fall after four months with steep increases. Overall, from February to July, petrol is now R5.95 per litre more expensive, currently costing R26.10 in Gauteng and R25.23 at the coast.
The diesel price dropped substantially in June and July, bringing the total increase since February down to R5.96 per litre on wholesale diesel with 0.05% sulphur. This follows three increases totalling R13.26 per litre from March to May. The rounded wholesale price of diesel with 0.05% sulphur is currently R24.79 per litre in Gauteng and R23.92 at the coast.
The slate levy, currently at R1.14 per litre, may be adjusted again in August. The slate fund had a massive negative balance of -R13.32 billion at the end of May, and needs to be reduced to -R500 million before the slate levy can revert to 0c per litre.
The slate fund is used to compensate fuel importers when they pay more for fuel in markets after the local wholesale price they may ask for has been regulated. There is a two-month lapse in paying the difference, based on real-time prices paid by importers.