The global oil price rose to its highest in a year yesterday on the back of persistent supply concerns, cementing fears of yet another significant fuel price hike in South Africa.
The Brent crude oil traded above $96 (R1831) per barrel yesterday, after rising to as high as $97.80 earlier in the day, the highest level in nearly a year as price volatility remains on changing economic expectations.
Oil prices rose over this month, from $86.80 per barrel to $94.50 per barrel for Brent crude, higher on reduced supply, as sharp decline in US crude stockpiles exacerbated concerns about tight global supplies.
Official data showed that US crude inventories fell by 2.2 million barrels last week, much more than market expectations for a 320 000-barrel draw.
The market has already been grappling with tightening global supply heading into winter as OPEC+ majors Saudi Arabia and Russia extended supply cuts through the year's end.
The Russian government on Wednesday also said it was considering restricting grey fuel exports and raising fuel export duty for resellers.
Though South Africa is an oil-producing country in a small scale, it remains a price taker in global fuel markets as a net importer of petroleum.
According to Statistics South Africa, the country depends a lot on the international community for petroleum as almost all of its supply (90%) is imported while 10% is locally produced.
This means that most of the volatility in domestic retail petrol prices results from global price movements that are beyond local control.
This has raised fears that the already-high consumer prices may begin escalating again, especially for food and non-alcoholic beverages, electricity and municipal bills.
Anchor Capital’s investment analyst Casey Delport said Brent crude oil prices have sadly risen by more than 25% since late June amid cuts in supply from major producers.
“Unfortunately, these factors offset further easing in food and non-alcoholic beverages inflation, one of the biggest components of the consumer price basket,” Delport said.
“Looking ahead, we largely expect another spike in the September inflation data, supported by more sizeable increases in fuel prices.
“It should then drift sideways in the top part of the inflation-target band until around mid-2024 when it is likely to get closer to the midpoint of the target range on a more sustained basis – cue a sigh of relief for consumers.”
The Automobile Association (AA) has already warned that South Africans should brace for more fuel price pain in October based on unaudited data from the Central Energy Fund (CEF).
According to the CEF’s data the main driver behind the potential increases are higher international oil prices which have climbed substantially since August, mainly on the back of reduced output by major oil producing nations.
The CEF’s data is showing that in the case of petrol, up to 80% of the increase can be attributed to higher oil prices while these prices are responsible for up to 86% of the expected climb to the price of diesel.
The poorer rand/dollar exchange is contributing to the increases, but its impact, at the moment, was minimal compared to that of rising oil prices.
According to the AA, the current data is indicating an increase to petrol of around R1.20 per litre and an increase to the wholesale price of diesel by as much as R2 per litre.
The AA said illuminating paraffin was also set for another increase with the data currently showing an under recovery of R1.84 per litre.
“Should these significant increases materialise, they will push fuel prices to levels last seen in July last year, stretching the personal finances of South Africans even further,” it said.
“Higher fuel prices will invariably lead to higher prices at the till, and which will be a blow to many who are already experiencing financial distress. The outlook is certainly bleak, although it has improved a little since the beginning of the month.”
BUSINESS REPORT