Motorists will have to brace for another petrol price increase in May as prices track higher for a fourth consecutive month this year, while diesel will see a cut. The price of diesel decreased by R0.30/litre, while both 93 and 95 octane petroleum prices increased by R0.37/litre. This means that the average logistics vehicle with an 80-litre diesel tank will cost around R24 less to fill up, while 93 and 95 octane petrol tanks will cost an additional R29.60. Similarly, the average consumer vehicle with a 45-litre diesel tank will cost around R13.50 less to fill up, whereas filling 93 and 95 octane petrol tanks will cost an additional R16.65.
While a mixed bag of global developments— including easing geopolitical tensions in the Middle East— helped ease oil prices from year-to-date highs during the month, the price of Brent crude remains elevated from its starting position of $75 a barrel at the beginning of the year. However, global economic growth constraints, hawkish sentiments from the US Federal Reserve— coupled with a large crude inventory build in the region, served to cap further upside to oil prices, amid subsequent demand concerns and dollar strength.
In the same breath, the local currency traded weaker for most of the month, driven primarily by international developments. With limited local catalysts to drive sentiment, investors grappled with the prospects of a higher-for-longer interest rate stance by the US Fed with similar remarks echoed by the SARB, while caution prevails ahead of the much-anticipated national elections in May.
Fuel price under-recovery for April
Diesel prices eased back amid seasonal changes and reduced demand leading to an over-recovery of the basic fuel price. On the other hand, petrol prices have steadily increased amid higher demand during the driving season in the northern hemisphere, propping up average international prices and leading to an under-recovery of the basic fuel price for this month.
An over-recovery usually happens when consumers are paying more than they should for the product on that day, while an under-recovery means the opposite. The daily over or under-recovery values are accumulated over the month and the final excess or shortage amount is then incorporated into the pump price on the first Wednesday of the next month. The CEF releases a daily report on the over-recovery and under-recovery of the basic fuel price.
Outlook:
The oil market is expected to be finely balanced this year. As global growth troughs, OPEC+ output restraint is required to counter growing non-OPEC supply from the Americas. Even as global growth forecasts have ticked higher, the risk of tighter monetary policy could further stifle demand. Furthermore, heightened geopolitical tensions have upheld the risk that supply conditions could become adverse, as recently witnessed in the Middle East. Fortunately, Israel and Iran showed restraint in their recent conflict and the push towards peace talks could further ease fears of conflagration. This would continue to reduce the risk premium that has supported higher oil prices.
The rand, on the other hand, should continue to experience near-term pressure from a hawkish Fed, and leading up to the national elections. Once the risk associated with the elections potentially subsides and we get a Fed rate cut, the rand is likely to recover from what we estimate to be a harshly undervalued position. This would not only support slower fuel inflation, but also broader cost pressures, and inevitably, interest rates. We still look forward to some relief for the consumer in the second half of this year, but the situation remains precarious.
Over the past three months, the Basic Fuel price has accounted for just over 55% of the petrol price, retail and wholesale margins accounted for just over 16%, taxes and levies for just over 28%.
How fuel prices are calculated:
- Basic Fuel Price: The basic fuel price made up roughly 55% of the total price of fuel over the past three months. The Basic Fuel Price is made up of the purchase price of fuel (in US dollars) as well as freight costs, insurance, storage, and financing. In South Africa, the fuel price is adjusted on the first Wednesday of every month and is determined by two main factors: the rand/US dollar exchange rate (how fuel is purchased), and international petroleum prices (how much the fuel costs to purchase).
- Taxes and levies made up just over 28% of the total price of fuel over the past three months, with the General Fuel Levy (GFL) and Road Accident Fund (RAF) Levy accounting for the largest portion. The GFL goes to National Treasury and government is free to utilise this levy in any manner it deems fit. The RAF levy can only be utilised for road accident claims. It is important to note that the abovementioned levies were not raised in the 2024 Budget, however, the carbon fuel levy lifted to 11c/litre for petrol and 14c/litre for diesel, effectively from the start of April 2024.
- Wholesale and retail margins, as well as distribution and transport costs, are the final contributors to the gross petrol price. These are costs associated with transport and storage, custom and excise duties, and retail margins for fuel station owners, accounted for nearly17% of the total fuel price over the past three months.
By Sithembile Bopela, Investment Analyst, FNB Wealth and Investments and Koketso Mano, FNB Senior Economist
Coma Stalk
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