More fuel relief, but exchange rate may hold sting

AA Fuel Price Outlook: 14 December 2018

Substantial further fuel price reductions are on the cards for January, but the exchange rate could spoil the party according to the unaudited mid-month fuel price data released by the Central Energy Fund.

The South African fuel price has yet to fully catch up with considerably lower international petroleum prices, which have stayed at the plateau they reached at the beginning of December.

However, a sharp depreciation of the Rand versus the US dollar has been noticeable since December 4, and we will be monitoring this trend closely for the remainder of the month.

The Rand, which bottomed out at R13.70 to the US currency in the first week of December, took a sharp turn for the worse, reaching nearly R14.50 by December 11 before staging a slight recovery. 

This hefty swing could offset oil price gains quite markedly if it continues.

Petrol is set for a R1.19 drop per litre, with diesel down a predicted R1.44 and illuminating paraffin lower by R1.32.

The expected decreases are attributable to continued downward movement in international product prices. Currently, the international product prices used in the calculation of the Basic Fuel Price, is USD$1.44/gallon, showing a continued decline in this price since the beginning of November when it traded at USD$1.80. 

Up to 95% of the expected drop in fuel prices in January can – at this stage – be ascribed to these lower product prices, with the Rand/US dollar exchange rate contributing only five percent of the forecast decrease. Much will depend on political and economic stability during the remainder of December, both at home and abroad. 

The local economic outlook remains sluggish, while international trade considerations and political instability in oil-producing regions could conspire to push international oil prices back up. Despite this, we are hoping these factors are not enough to deny South African fuel users another much-needed breather at the pumps at the start of the new year.