Things are looking great for diesel prices in December – and a bit of good news for petrol

Both the rand and international oil prices are setting motorists up for a much happier December, with both indicators showing favourable conditions for a diesel price drop next month – while the expected petrol price increase has halved since the middle of the month.

The latest daily snapshot of fuel price movements from the Central Energy Fund shows that diesel could come down by as much as R1.12 a litre in December, while the expected petrol price increase has halved from R1.20 a litre to around 60 cents per litre.

This comes as international oil prices ease to around $85 a barrel and the rand strengthens to below R17 to the dollar.

However, it should be noted that the markets remain volatile, and things can still change before the end of the month. But economists at Nedbank see fuel prices moderating further in the long term, barring any significant shocks.

“Global oil prices could rise from the current low levels as the OPEC+ cartel is likely to cut production to boost the oil price, which has recently been pressured by slowing global demand,” the bank said.

But at the moment, the oil price has maintained its low levels, driven by three main factors.

The first is the Chinese Covid outbreak which has dented production and severely cut consumption. As the Chinese government implements strategies to try and eradicate rather than control the virus – ie, the ‘zero-Covid’ approach – the world’s second-largest economy is slowing, dampening global demand.

This feeds into the second factor – the looming global recession. With a major slowdown in production expected, oil prices are following suit. The final factor is the ongoing Russia-Ukraine war, which has led to sanctions being placed on Russia and its oil.

However, according to Bloomberg, the European Union is now considering a higher-than-expected price cap on Russian crude, which analysts say will likely have a minimal impact on trading, thus supporting lower prices.

These factors are outweighing the push from OPEC+ to limit supply, keeping prices low.

Rand strength

The rand dropped below R17 to the dollar on Wednesday and continued to hold at that level in early trade on Thursday.

As has been the case for much of the year, the rand’s strength has less to do with local factors and more to do with international markets – particularly in the United States.

According to Andre Botha, senior dealer at TreasuryONE, the market has become accustomed to movements in the rand coming down to the US dollar – “for the most part, the Fed, and how they handle the inflation environment currently in the US”.

“That narrative has not changed in the slightest, as we have seen that inflation printed at 7.7%, which the market has seen as a time for the Fed to start tapering its hawkish talk around interest rates,” he said.

As the Fed’s narrative shifts to a less hawkish tone on rates, markets respond by being more risk-on, which benefits emerging markets, including South Africa.

Economists have noted that the South African Reserve Bank is generally following the trends set by the Fed, and so currency markets are riding a wave of optimism that the tone is shifting.

However, Botha said that the key would be the tone set after the SARB’s rate announcement on Thursday (24 November).

“We expect the MPC to hike interest rates by 75 basis points on Thursday, mainly in line with the hikes being done by the Fed. The key is what tone the MPC will strike after the announcement, as growth in South Africa is anaemic at best and more hikes will hike us into a recession,” he said.

“We believe that the rand is building a base currently and could look to trade weaker in the short term, where levels above R17.50 should be used by exporters as we expect the rand to stage a recovery in the second half of 2023.”

Read: Good news for diesel prices in South Africa

Things are looking great for diesel prices in December – and a bit of good news for petrol