Petrol price joy for South African motorists

South African motorists can expect a big decrease in petrol and diesel prices in June, which bodes well for inflation and interest rates.

The Automobile Association (AA) said they expect price cuts in petrol, diesel, and illuminating paraffin in June.

Using unaudited mid-month data from the Central Energy Fund (CEF), the AA predicts that the price of petrol will drop by between R0.61 and R0.63 per litre.

The wholesale price of diesel is expected to decrease by around R0.74 per litre and the price of illuminating paraffin by almost R0.69 per litre.

The lower expected petrol and diesel prices are thanks to a stronger local currency and a decrease in international oil prices.

“Movements in international product prices decreased significantly at the beginning of the month,” the AA said.

“The lower product prices were aided by the downward trajectory of the rand trading stronger against the dollar since the end of last month.”

Over the last month, the price of Brent crude oil declined by 7%. It hit a two-month low earlier this week before rebounding after bullish US economic and storage data.

On 15 May, the International Energy Agency (IEA) lowered its forecast for 2024 oil demand growth. If this is accurate, lower prices may be in store.

The IEA’s lower oil demand forecast was linked to poor industrial activity, a mild winter, and a declining share of diesel cars. These factors lowered consumption.

The rand has also seen significant improvements over the last month, which further lowered the price of oil in the local currency.

Over the past month, the rand strengthened by over 4% against the US dollar – from R19.14 to R18.33.

The result is that South African motorists can expect good news when the new petrol price is announced for June.

“With these expected decreases, the price of 95ULP will dip slightly to below the R25/l mark, and the price of 93ULP will cost R24.52/l,” the AA said.

“While fuel is still more expensive now than at the beginning of the year, these forecast decreases offer some relief.”

Impact of lower petrol and diesel prices

The impact of lower fuel prices is felt throughout the economy and goes far beyond reducing the cost to fill up your tank.

South Africa’s economy is highly reliant on road transport and fuel prices, therefore, impacts all sectors of the economy.

The recent fuel price increases have increased the price of many products transported by roads, which in turn drives up inflation.

Road Freight Association CEO Gavin Kelly said that when the fuel price climbs, people will pay more for goods transported by road.

Kelly said fuel constitutes more than half of the operational cost of moving a truck. The higher fuel costs are, the more expensive it gets to move goods.

Higher fuel costs cause higher inflation, which raises the chances of the South African Reserve Bank (SARB) keeping interest rates high for longer.

Lower fuel prices, in turn, will lower inflation and increase the chance of the SARB reducing interest rates.

In April, the SARB warned that South Africa’s path to lower inflation has become less certain and is being “frustrated” by elevated food prices and volatile energy costs.

Despite inflation falling back within the 3% to 6% target band and staying there, it has hovered well above the 4.5% midpoint, where it prefers to anchor expectations.

“These setbacks suggest that the path back to the 4.5% midpoint of the target band is likely to be bumpy and protracted,” the SARB said.

The Reserve Bank’s caution underpins policymakers’ inaction on interest rates since May last year, having kept the benchmark interest rate at a 2009 high of 8.25% for five straight meetings.

Lower petrol prices will help to drive down inflation to the 4.5% mid-point, which will increase the possibility of an interest rate cut.