Fuel prices could drop

Substantial rand weakness could undo recent fuel price stability.

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

“Almost two months of modestly improving rand strength ended in a dramatic reversal as the local currency was caught up in the emerging market chaos triggered by Turkey’s economic difficulties,” the AA says.

“Until the crisis hit, the fuel price picture for August had been flat, with data predicting modest declines in all fuel types at month-end, thanks to reasonable stability in the rand and international oil prices.”

Mid-month data suggests a fall in petrol of around two cents, with four cent and eight cent drops predicted for diesel and paraffin respectively. However, the daily exchange rate for the rand fell nearly nine percent against the US dollar in two days after the news of Turkey’s troubles broke, and remains well above its recent trend.

This has tipped petrol towards a likely increase at month end, and substantially offset the gains made by diesel and paraffin.

The AA says the fuel price trajectory towards the end of August would depend on factors largely beyond South Africa’s control.

“Turkey is resisting tighter fiscal policy and an end to the standoff with the United States over the detention of one of the latter country’s citizens,” the association says.

“The tendency of investors to regard emerging markets as a single basket means that further negative news out of Istanbul is likely to be bad for the rand and South Africa’s fuel users too.”

The AA says motorists should not count on the moderate trend of the past six weeks continuing, and advises them to economise where at all possible.

“The extent and duration of the recent currency weakness will be pivotal in South Africa’s short-term fuel price outlook,” it concludes.