South Africans are bracing for yet another petrol price increase in February, with early data showing significant hikes expected for both petrol and diesel. This comes despite a stronger rand and lower global oil prices, which have failed to offset mounting under-recoveries.
Petrol Price Under-Recoveries Persist
The Central Energy Fund (CEF) data for the week ending 24 January reveals under-recoveries of 86-93 cents per litre for petrol and approximately R1.10 per litre for diesel. These under-recoveries persist even though the rand has strengthened from recent highs of over R19/$ and oil prices have fallen below $80 per barrel.
However, the daily improvements in these metrics have not yet filtered into the monthly average used by the Department of Petroleum and Mineral Resources to determine price adjustments. Thus, a steep increase remains on the cards for February.
Inflation Pressure Mounts
The year began with a 12 cents per litre hike in January, contributing to inflationary pressures expected to persist into the first quarter of 2025. While economists at Nedbank forecast average inflation at a muted 4% for the year, they warn of upward pressure from food and fuel prices as they rebound from historically low levels.
“Fuel price deflation seen in the past year will gradually fade and reverse,” cautioned Nedbank analysts. While global oil prices are projected to decline, the combination of a weaker rand and a low base will drive local fuel prices higher.
Global and Local Market Dynamics
The rand’s volatility has been influenced by global uncertainty, particularly in response to shifting US trade and economic policies. President Donald Trump’s inauguration created waves of speculation around tariffs and trade wars, which initially unsettled markets. However, a more measured approach by the US Federal Reserve on interest rate cuts has somewhat stabilised sentiment.
Locally, the South African Reserve Bank (SARB) faces limited room to manoeuvre on interest rates without risking further currency weakness. The rand, which recently recovered to R18.50/$, remains vulnerable to external shocks.
Oil Markets Offer Little Relief
Although global oil prices have declined, they remain higher than at the end of 2024, driven by geopolitical factors like US sanctions on Russia and heightened heating demand during a harsh Northern Hemisphere winter. Market analysts also cite bearish sentiment stemming from Trump’s calls for increased US oil production and reduced OPEC pricing.
Despite these downward pressures, oil futures remain volatile. Bloomberg’s analysis notes that oil futures have suffered their largest weekly loss since November, yet prices remain elevated compared to late 2024 levels.
Conclusion
While the stronger rand and lower oil prices might appear promising on the surface, they are insufficient to stave off significant petrol price hikes in February. South Africans should prepare for higher costs at the pump, which will undoubtedly contribute to rising inflationary pressures in the months ahead.
Related article: Major Petrol and Diesel Price Hikes Expected in February 2025
