The Brent crude oil price has retreated in recent days, but it does not mean it will shield South Africans from another round of fuel-price increases at the start of October. Brent crude still remains above $100 per barrel, as it traded at $101.08 per barrel on Monday. This is despite signs of recovering Middle East supply, with Saudi exports rebounding and Strait of Hormuz flows at a six-month high.
According to Bianca Botes, managing director at Citadel Global, the recovering Middle East supply outweighs the ongoing Gulf conflict. Gold is also holding firm, while a firmer dollar is sitting near recent highs after last week's Fed rate hike. Dr Lerato Ntuli, economist at Anchor Capital, noted that Brent crude has retreated from around $106 per barrel in mid-September to near $102 per barrel.
The retreat in Brent crude is supported by signs of de-escalation in regional tensions, including reduced disruption risks around Saudi energy infrastructure and the rerouting of some crude exports through alternative shipping routes. However, South Africa's October fuel prices are largely determined by earlier oil-price and rand movements, limiting the impact of the latest decline.
South Africa's Basic Fuel Price (BFP) is calculated daily by the Central Energy Fund (CEF) with the monthly fuel adjustment based on the average daily BFP and average rand-dollar exchange rate over the review period. This means domestic fuel prices lag international price movements by around a month. As the review period for October is now nearing completion, most of the month's pricing has already been determined.
Data currently points to increases of up to R2.78 per litre for petrol and R3.00 per litre for diesel. The government also has no immediate intervention planned to cushion households and businesses from rising fuel costs, Mineral and Energy Minister Gwede Mantashe confirmed recently in Parliament.
The rand movements add to the risk, with the rand currently trading around the R16.30 levels against the US dollar and has remained relatively resilient despite the recent oil shock. However, risks to the currency have increased, and any further Fed rate increases later this year would compress that differential further, potentially reducing support for the rand.
Dr Ntuli predicts that the South African Reserve Bank will raise the repo rate by 25 basis points at the upcoming MPC meeting, citing elevated oil prices, persistent core inflation, potential rand weakness, and a more hawkish Federal Reserve. On Monday, the rand traded firmer across the board, underpinned by the retreat in oil and steadier global risk appetite, with attention turning to Wednesday's SARB's rate decision.
Key points
- - The Brent crude oil price remains above $100 per barrel. - South Africa's October fuel prices are likely to increase by up to R2.78 per litre for petrol and R3.00 per litre for diesel. - The South African Reserve Bank is expected to raise the repo rate by 25 basis points at the upcoming MPC meeting.
