Motorists in South Africa should prepare themselves for another petrol price hike in December, says Investec chief economist, Annabel Bishop, commenting on oil global oil price trends at the start of November.

Bishop said that oil prices dropping since June on average resulted in some price cuts for fuel in South Africa, but recent increases are now pushing petrol and diesel prices the other way.

“Further price hikes (are) building for December, too, with the rand stable and not a contributor,” she said.

For the oil price in rand terms, she said, there has been a similar trajectory, with the rand’s exchange rate reflective of sentiment in global financial markets and the movements in the US dollar – stabilising over October, then weakening in November.

There is some support in the market, notably with building expectations that the United States will not see a severe recession and that its interest rate hikes have been fairly easily absorbed in a strong labour market, Bishop said.

The rand has consequently strengthened against the US dollar, reaching R17.66/USD on Wednesday, from R18.41/USD after the US Fed meeting last week. The currency weakened again on Thursday to R17.80 to the dollar but is not currently testing the R18.00/USD mark.

Analysts have warned that the move below R18.00 has been swift, pointing to heightened volatility in the market – which means that a move back above R18 to the dollar, where the rand has been sitting for a while, could also be just as swift.

However, even with a stronger rand, Bishop said that this is still not enough to counter higher oil prices, with December currently factoring in a R1.30/litre petrol price hike.

This assessment is reflected in the latest data from the Central Energy Fund (CEF) for 9 November 2022, which shows an under-recovery in petrol prices of around R1.30 per litre, and between 10 to 18 cents per litre for diesel.

The CEF’s breakdown shows that the rand’s recent strength against the dollar is contributing around 3 cents per litre to an over-recovery – but this is nowhere near enough to cover the under-recovery from higher petroleum product costs.

According to Bishop, the Brent crude oil price is lower compared to the average for the year to date of US$101 per barrel, but in rand terms, it is at R1,690/bbl currently, higher than the average for the year so far of R1,639/bbl, with OPEC+ now supporting the oil price above US$90/bbl.

“OPEC+, which includes Russia, has been supporting the oil price by cutting quotas on supply and has lifted the level from US$75/bbl a few years ago – and with reductions in carbon emissions over the longer-term, as OPEC+ continues to seek to maximize returns,” she said.

“Typically, when economic cycles slow down, commodity prices do too, as demand weakens, allowing for lower inflation and then interest rate cuts on a significant cycle. But high, and rising oil prices have not allowed for rapid subsidence in inflation.”

The economist noted that falling fuel prices pulled SA inflation down since July, but this effect wore out in November and now likely will continue in December, which will slow the descent in inflation this year and into next, as high energy prices support a slower pace of disinflation.