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Tuesday, May 28, 2024

Big Fuel Prices Drop Predicted for June

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Motorists in South Africa could see some relief at the pumps in June as early data suggests a potential cut in both petrol and diesel prices.

Data from the Central Energy Fund (CEF) for the first week of May indicates an over-recovery in both petrol and diesel prices.

Petrol prices are showing an over-recovery of 34 cents per litre, while diesel is showing a more significant over-recovery of between 68 and 73 cents per litre.

This would mark a notable change in direction for petrol prices, which have risen for four consecutive months in 2024.

Starting with a 76 cents per litre cut in January for Petrol 95, prices have seen a combined increase of R3.00 per litre from February to May, resulting in a net increase of R2.24 since the beginning of the year.

Diesel prices, on the other hand, have experienced a more modest net increase of only 12 cents per litre this year.

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However, it’s important to note that this data is preliminary, and market conditions could still shift before the Department of Mineral Resources and Energy makes the final announcement.

Nonetheless, the current data indicates positive conditions for motorists.

The positive signs stem from a stronger rand compared to most of April and a lower global oil price, which has fallen below $83 a barrel.

Both factors are contributing to the over-recovery in fuel prices.

For prices to swing from over-recovery to under-recovery and bring about price hikes, both the rand would need to weaken, and oil prices would need to rise.

Fortunately, oil prices have been on a downward trend since early April, experiencing losses in three of the past four weeks.

Bloomberg economists suggest that indicators such as timespreads and processing margins point to a weaker outlook.

Despite this optimism, economists warn of ongoing supply-side risks that could push prices higher.

These risks include the possibility of oil-producing nations renewing curbs on Iranian and Venezuelan oil, as well as ongoing tensions in the Middle East.

On the currency front, the rand has shown strength in recent sessions, buoyed by hopes of an earlier US interest rate cut and some weakness in the US dollar.

However, the rand remains volatile, with its strengthening streak largely dependent on US data and election tensions ahead of the May 29 vote in South Africa also influencing its movement.

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