South African motorists could be looking forward to another substantial fuel price decrease in October 2024, marking the fifth consecutive cut in petrol and diesel prices this year. Early data from the Central Energy Fund (CEF) for September indicates a significant over-recovery across fuel categories, driven by a stronger rand and lower global oil prices.
Price Drops Forecast
Based on current figures, the following over-recoveries have been recorded for the first week of September:
- Petrol 93: over-recovery of 131 cents per litre
- Petrol 95: over-recovery of 139 cents per litre
- Diesel 0.05% (wholesale): over-recovery of 112 cents per litre
- Diesel 0.005% (wholesale): over-recovery of 125 cents per litre
- Illuminating paraffin: over-recovery of 118 cents per litre
These over-recoveries reflect potential price reductions at the pumps for South Africans in October, with petrol expected to drop by over R1.30 per litre and diesel by over R1.10 per litre. If current trends hold until the end of the month, the total reduction in petrol prices for 2024 could reach approximately R1.60 per litre. This would be a notable shift from the first half of the year, which saw a net R3.00 per litre increase in fuel prices.
Strengthening Rand and Volatile Markets
The stronger rand is one of the key factors behind these price cuts. After starting September at around R17.70 to the dollar, the local currency has maintained its strength, trading below R18 to the dollar for most of the month.
According to Investec’s chief economist, Annabel Bishop, the rand has benefitted from a decrease in political risk and is projected to remain stable, averaging R17.70/USD in the fourth quarter of 2024. Bishop further forecasts that the rand could strengthen to R17.00/USD in 2025 and potentially reach R16.00/USD by 2026, assuming improved global market conditions and faster domestic economic growth.
However, the rand remains sensitive to international market movements, particularly decisions by the US Federal Reserve and the South African Reserve Bank (SARB) regarding interest rates. Despite this volatility, the currency’s performance has been relatively stable compared to earlier in the year when it hovered around R20.00/USD.
Global Oil Prices in Decline
Global oil prices have also contributed to the fuel price drops, with crude oil now trading below $73 per barrel. This marks the steepest weekly decline in oil prices in nearly a year, driven by concerns over weak demand from key markets like China and India, as well as increased supply from non-OPEC producers.
OPEC+, the alliance of oil-producing nations, had initially planned to increase oil output in October but reversed its decision in response to falling benchmark prices. While the group’s statement initially led to a brief spike in oil prices, they quickly flattened out.
The slowdown in demand for diesel in Asia and Europe is also playing a role in the oil price decline. Refining margins have decreased, and futures prices in Europe reached their lowest levels since mid-2023, reflecting a broader trend of weakening global demand for fuel.
Conclusion
South Africans can anticipate another significant drop in fuel prices in October, thanks to a combination of a stronger rand and declining global oil prices. If current conditions persist, the cuts will provide much-needed relief for motorists, especially after the price hikes seen earlier in the year.
