The massive retreat of international petroleum prices sets a stage for huge reductions in fuel prices at the month-end, says Automobile Association (AA)

 

  • The spread of the Covid-19 virus has accelerated across the globe

  • World financial markets have plunged

  • Saudi Arabia slashed its crude prices after exiting the Organisation of the Petroleum Exporting Countries (Opec)

Key events on the world stage have conspired to suppress the price of oil, bringing relief to oil-importing countries such as South Africa, even as the rand weakens.

Effects of a weak rand against the US dollar have since been overtaken by events in the oil industry much to the amusement of South African motorists. The massive retreat of international petroleum prices sets a stage for huge reductions in fuel prices at the month-end, says Automobile Association (AA).

The AA said this while commenting on unaudited mid-month fuel price data released by the Central Energy Fund.

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The current data show petrol down by up to R1.11 a litre, diesel by R1.10 and illuminating paraffin by R1.18. However, these declines must be weighed against the 25c increases in the fuel levies announced by the finance minister in February which come into effect on April 1.

The outlook based on the current data, with the levy adjustments taken into account, is for a decrease of up to 86c a litre for petrol, and up to 85c a litre for diesel. The levies are not applied to paraffin.

“As the spread of the Covid-19 virus accelerates across the globe, world financial markets have plunged, with capital fleeing to safe havens. The rand has been sharply weaker against the dollar on this trend,” the AA says.

Saudi Arabia

“However, this has happened side-by-side with Saudi Arabia’s decision to break ranks with the Organisation of the Petroleum Exporting Countries (Opec). Not only has Saudi Arabia slashed its crude prices, it has also increased production substantially.”

The AA says Saudi Arabia’s actions come at a time when global oil demand is in decline as the coronavirus hits manufacturing and commerce, leading to a steep slump in the oil price.

“The last time oil prices dropped this suddenly was during the first Gulf War, almost 30 years ago. It means good news at the pumps for South Africans.”

The AA says it doesn’t believe the declines will end at their current levels.

“There is little indication of what the final picture of the Covid-19 spread will be, nor where the rand will stabilise against the dollar. It also cannot be predicted how long the Saudis are prepared to hold out in their oil price war, since their oil industry is believed to be able to maintain profitability at substantially lower per-barrel prices than the current level,” the AA notes.

The AA says it foresees an extended period of turmoil.

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“It will take quite some time for the global economy to get back on an even keel after the current events, and the next two or three months seem set to provide some fuel price relief to hard-pressed motorists,” it says.

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