A good reason to get tanked this Christmas

'Recent fears of over-supply [and] concerns over slower future global growth have seen the oil price ease,' says Investec chief economist Annabel Bishop. (Oupa Nkosi/M&G)

'Recent fears of over-supply [and] concerns over slower future global growth have seen the oil price ease,' says Investec chief economist Annabel Bishop. (Oupa Nkosi/M&G)

There may be some early festive cheer in store for South Africans — the petrol price could drop by about R1.50 a litre, if not more, in December. This follows months of hefty increases.

The Central Energy Fund (CEF) has signalled a large cut, according to Investec chief economist Annabel Bishop in a note, although sustained lower prices are not a given.

In recent daily fuel price updates, the CEF has reported substantial over-recoveries because of both international oil price reductions and exchange rate improvements, indicating price cuts are on the cards for petrol, diesel and paraffin.

Because of concerns about oversupply, crude oil prices have declined from $86 a barrel in October to about $65 a barrel this week, Bishop says.

“Recent fears of oversupply, particularly in combination with concerns over slower future global growth, have seen the oil price ease. Anticipated lower future oil demand, along with rising stockpiles of crude oil and production increases from Russia, the United States and Saudi Arabia, have given rise to fears of excess supply.”

A surge in US production, notably shale, is underpinning rising US oil stockpiles, according to Bishop.
But, because of this, the Organisation of Petroleum Exporting Countries is now proposing production cuts, fearing oversupply in 2019, and, should there be further signals from Opec on production and cuts ensue, the oil price could rise back towards $70 a barrel.

A relative firming of the rand against the dollar has also enhanced the outlook for local fuel prices. According to Dave Mohr and Izak Odendaal, Old Mutual Multi-Managers investment strategists, the rand-dollar exchange rate averaged R14.50 in October and R14.21 in November.

Along with the declines in international oil prices, this should add up to a sizeable cut in December, which will “provide a boost for holiday season consumer spending”, they say in a note.

It will also buy the South African Reserve Bank’s monetary policy committee some time to monitor the inflation and economic growth outlook, they say, making an expected interest rate hike next month less likely.

READ MORE: Fuel pricing structure under review

During the year, there has been a growing public outcry about rising fuel prices. Petrol has risen from R14.05c a litre for 95 octane fuel in Gauteng a year ago to more than R17 a litre currently.

The steep hikes have also included increased taxes and levies, including the fuel and road accident fund levies, which were increased by 22c a litre and 30c a litre respectively earlier this year.

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