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 over $100 per barrel, as it traded at $101.08 per barrel on Monday. On the South African fuel price front, 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
In the global oil market, there have been signs of recovering Middle East supply, with Saudi exports rebounding and Strait of Hormuz flows at a six-month high, said Bianca Botes, managing director at Citadel Global.
"This 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," Botes said.
Dr Lerato Ntuli, economist at Anchor Capital said: "Brent crude has retreated from around $106 per barrel in mid-September to near $102 per barrel, 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."
Why October fuel prices may still rise
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.
Ntuli said, "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, limiting the extent to which the recent decline in oil prices can affect October fuel prices. Furthermore , while the decline in oil prices is meaningful, Brent remains materially higher than $87.88 per barrel in the previous review period."
Ntuli added that the more important implication is for November's fuel price adjustment.
"If Brent remains at current levels or declines further through to end of October, and provided there is no renewed geopolitical escalation or significant rand weakness, the next pricing cycle would begin from a lower base, improving the prospects for fuel price relief towards year-end," Ntuli said.
Rand movements add to the risk
"The rand is 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. The Federal Reserve's tightening cycle has narrowed the interest-rate differential between South Africa and the US. With the South African Reserve Bank repo rate at 7.00% and the Fed funds rate at 3.75%-4.00%, South Africa's nominal yield advantage has narrowed," Ntuli said.
"Any further Fed rate increases later this year would compress that differential further, potentially reducing support for the rand. While Brent crude has retreated from recent highs, it remains about 13% higher than end of August. The elevated oil prices, combined with the prospect of a firmer US dollar, this raises the risk of renewed imported inflation pressures through higher fuel and transport costs," Ntuli added.
The Anchor Capital economist said that the August inflation print is also unlikely to fully capture the fuel shock currently moving through the economy.
"The largest petrol price increases will only begin feeding through into the September CPI data, while the expected October fuel price increase will primarily appear in the October inflation figures released in November. In other words, a significant portion of the fuel-driven inflation impulse remains in the pipeline," she said.
Ntuli said she predicts that the Sarb will raise the repo rate by 25 basis points at the upcoming MPC meeting.
"Elevated oil prices, persistent core inflation, potential rand weakness, and a more hawkish Federal Reserve collectively strengthen the case for a precautionary tightening," Ntuli said
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.
It changed hands at R16.25/$, R18.68/€ and R21.78/£ on Monday afternoon.
ashley.lechman@nationalmg.co.za