Another massive fuel price drop awaits post-lockdown SA

This is according to the Automobile Association (AA), which was commenting on unaudited mid-month fuel price data released by the Central Energy Fund.

“Coming in the wake of March’s record fuel price reductions, South Africa is probably set for a second month of record fuel price drops for some fuel types,” the AA said in a statement on Wednesday. “The irony is that this has come at a time where motorists and businesses are severely limited as to how they can use their vehicles.”

The mid-month data showed petrol down by a massive R1.89 a litre, with illuminating paraffin dropping by R1.88 and diesel by R1.17.

The AA says the factors which initially touched off the plunge in oil prices before the Covid-19 pandemic placed much of the world in lockdown had now been resolved.

“The spat between Russia and Saudi Arabia has ended with an agreement which is expected to see global oil production reduced by nearly 10 million barrels a day in a bid to support oil prices. However, it may be a case of too little, too late,” said the AA.

“World commerce has all but collapsed in the wake of the Covid-19 pandemic. Even assuming a fairly rapid end to the pandemic, it will take many months for the global economy to work up a new head of steam, and possibly years before it returns to pre-Covid-19 levels. Absent further shocks, we expect it to be a long while before substantial oil price hikes are a reality,” added the AA.

The association said that even the rand’s vast crash against the US dollar since March had not been enough to offset the steep decline in oil prices.

“The rand has gone from an average exchange rate against the dollar of R15.65 on 2 March to its current level of around R18.25. In any other circumstances, a crash of 17% in six weeks would see South Africans facing a massive fuel price hike. Instead, we are set for another large drop.”

The AA said the market remained highly volatile and cautioned that these figures could be very different by month-end.

“But as matters currently stand, when South Africans come out of lockdown at the end of April, fuel prices will be around R3 a litre lower than when they went in,” the AA said.

(Edited by Charles Cilliers)

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