South African motorists could be in for another sharp increase in fuel prices next month, with mid-month data from the Central Energy Fund (CEF) pointing to significant under-recoveries.
The latest figures show that petrol is currently recording an under-recovery of between 63 and 74 cents per litre, while diesel faces considerably larger increases of between R2.73 and R2.89 per litre.
The pressure on fuel prices has been driven largely by renewed conflict in the Middle East, which has caused volatility in global oil markets and added strain to international diesel supplies.
Despite the concerning figures, the latest data represents an improvement from the beginning of the month. September’s review period initially saw petrol under-recoveries of around R1 per litre, while diesel was facing under-recoveries of approximately R5 per litre.
However, the reductions offer little relief to motorists, who have already seen petrol and diesel prices rise substantially since the outbreak of the conflict.
Based on the current mid-month figures, fuel price increases could push the additional cost to more than R6 per litre for petrol and above R11 per litre for diesel.
The current CEF figures are:
- Petrol 93: Increase of 63 cents per litre
- Petrol 95: Increase of 74 cents per litre
- Diesel 0.05%: Increase of R2.73 per litre
- Diesel 0.005%: Increase of R2.89 per litre
- Illuminating paraffin: Increase of R2.15 per litre
With roughly half of the month still remaining in the review period, the figures could change before the final adjustment is announced. However, current trends suggest that increases are more likely than decreases.
Investec Chief Economist Annabel Bishop said the stronger rand and oil prices remaining below $90 a barrel have provided some optimism that the final fuel price adjustments could moderate by the end of the month.
However, much will depend on developments in the conflict between the United States and Iran. Bishop said a peace agreement in the near term remains unlikely.
Oil prices have experienced significant volatility in recent weeks and are currently trading at around $88 a barrel.
The situation worsened after diplomatic efforts between the US and Iran collapsed in July, contributing to renewed disruption in the Strait of Hormuz. Oil prices subsequently surged to around $100 a barrel.
Prices later eased after some shipping activity resumed through the strategic waterway, although the passage remains unsafe and has not fully reopened.
Reports indicate that Iran has been negotiating with Oman over the possible reopening of the Strait of Hormuz, but no agreement has yet been reached.
The uncertainty has also been compounded by a tougher stance from Washington, with US President Donald Trump making new demands.
US Energy Secretary Chris Wright has said the ability of US forces to escort vessels through the strait is increasing, which could help restore the flow of oil and other commodities.
However, tanker movements remain risky, with some vessels reportedly switching off their tracking transponders to reduce the risk of being targeted.
Analysts expect oil prices to remain between $80 and $90 a barrel unless there is a major development in the conflict.
The rand is providing some relief to South Africa’s fuel price outlook. The currency has strengthened against the US dollar, reducing the local fuel price under-recovery by roughly 10 cents per litre.
The rand is currently trading at around R16.20 to the dollar, supported by changing expectations around US interest rates following recent employment and inflation data.
The South African Reserve Bank also kept interest rates unchanged at the end of July, reducing expectations of a near-term rate increase.
Investec expects the rand to remain relatively resilient in the coming months and potentially strengthen further towards the end of the year.
Under its baseline scenario, assuming a peaceful resolution to the Iran conflict, the rand could strengthen beyond R16 to the dollar and potentially reach around R15.75/$.
However, renewed global instability or a deterioration in the conflict could place renewed pressure on the currency and fuel prices.