South African motorists could face higher diesel prices next month as recoveries have swung into negative territory amid rising global oil prices driven by the ongoing conflict between the United States and Iran.
The latest data from the Central Energy Fund (CEF) shows that both Diesel 0.05% and Diesel 0.005% have moved into under-recovery, signalling potential price increases when the Department of Mineral and Petroleum Resources announces the August fuel price adjustments.
The shift follows a gradual decline last week, when Diesel 0.005% briefly reached a neutral recovery level before turning negative.
According to analysts, diesel prices are being pressured by a combination of factors, including renewed disruptions to shipping through the Strait of Hormuz as the conflict in the Middle East intensifies, as well as supply shortages from Russia.
Chief Investment Strategist at Symmetry, Izak Odendaal, had warned that diesel's mid-month over-recovery would likely be erased by the impact of the conflict.
He said an over-recovery of around 30 cents per litre would be outweighed by daily under-recoveries of approximately R3.73 per litre caused by surging international oil prices.
KPMG South Africa Lead Economist Frank Blackmore also cautioned that any renewed disruption in the Strait of Hormuz would place further upward pressure on fuel prices.
"It is possible that the current over-recovery will be absorbed before the end of the month when fuel prices are determined," Blackmore said.
The latest CEF figures indicate that diesel is now sitting at an under-recovery of between 22 and 45 cents per litre.
Current fuel price recoveries are as follows:
- Petrol 93: Over-recovery of 83 cents per litre
- Petrol 95: Over-recovery of 79 cents per litre
- Diesel 0.05% (wholesale): Under-recovery of 45 cents per litre
- Diesel 0.005% (wholesale): Under-recovery of 22 cents per litre
- Illuminating paraffin: Under-recovery of 21 cents per litre
While petrol prices remain in over-recovery and could still decrease in August, the margin has been narrowing steadily as international oil prices continue to climb.
Despite the expected adjustments, fuel prices remain significantly higher than they were before the conflict escalated, with petrol costing around R6 more per litre and diesel more than R7 per litre above pre-war levels.
Economists have warned that sustained high fuel prices are likely to place additional pressure on inflation, increasing transport and operating costs for businesses and ultimately raising prices for consumers.
The outlook also adds complexity to this week's Monetary Policy Committee meeting of the South African Reserve Bank (SARB), which is expected to announce its latest interest rate decision on Thursday.
Blackmore said the central bank may need to reassess its inflation outlook if elevated oil prices persist.
Before the latest escalation in the conflict, many analysts expected the SARB to leave interest rates unchanged as oil prices had been easing under a ceasefire. However, the renewed fighting has shifted expectations, with an increasing number of economists now anticipating a 25-basis-point interest rate hike to counter inflationary risks.