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Rising oil prices and a weaker rand are expected to lead to higher petrol and diesel prices at the pumps in November, with the government expressing concerns over South Africa’s lack of refining capabilities to give the country enough of a buffer.
The latest daily snapshot from the Central Energy Fund (CEF) shows that South African motorists are in for pain at the pumps next month, with petrol prices currently showing an under-recovery of 51 cents per litre.
According to the CEF, all fuel types are showing an under-recovery, with diesel seeing the largest with a possible R1.60 per litre increase on the cards.
The bad news on the fuel front comes as global oil markets remain volatile following news from OPEC+ that it would cut as many as two million barrels in production – exacerbated by ongoing fears over an economic slowdown that continues to weigh on the outlook for demand, Bloomberg reports.
The knock-on effect on local fuel prices is made worse by persistent rand weakness, as the local unit remains under pressure from a stronger dollar and a host of local issues, including a protracted strike at Transnet and continued load shedding.
Global oil prices have remained below a record $100 a barrel but have climbed from a low point of $83 at the beginning of October. A fluctuation in the global price of oil has massive consequences on South Africa and is one of the driving factors of changes alongside the country’s exchange rate.
Oil has been a hot topic globally, with tensions rising between key industry figureheads. As reported by CNN, the Saudi-American relationship has hit a new low after OPEC+ (run by Saudi Arabia) cut oil production amid the Russia-Ukraine war – rising inflation in the US.
OPEC+ announced that it would cut approximately 2 million barrels from production this year, creating major market uncertainty. Financial analysts anticipate the actual reduction will be much lower, but the announcement was enough to push the price of oil to around $95 a barrel, raising red flags for fuel costs.
Turning to Saudi Arabia
President Cyril Ramaphosa was recently in Saudi Arabia to discuss investment opportunities between the two countries, with energy as a major talking point alongside direct foreign investment into South Africa.
Speaking on the sidelines of the meetings, minister of international relations Naledi Pandor noted that global tensions are all playing a part in rising oil prices, which is causing concerns around fuel prices back home.
Pandor said that there are several factors at play, including:
- The war between Russia and Ukraine;
- The economic fallout in the UK;
- The trade conflict between the USA and China.
All these have an impact on a range of commodity prices, said Pandor – fuel prices included. These impacts are complicated locally by restrained refining ability.
The minister went on to add that South Africa, prior to the pandemic, initiated discussions with the Saudis to increase domestic refining capacity by having a refinery built in KwaZulu-Natal.
In light of rising international fuel costs, global supply chain shortages and the fact that South Africa currently only has one operational oil refinery, Pandor said that such discussions should be reignited.
“We need to continue pursuing those discussions because they have not come to fruition yet. This remains an important objective because if we increase refinery capacity at least in terms of storage, we will have a fallback should there be challenges regarding access to petroleum.”
According to Pandor, South Africa seeks to strengthen its economy by building stronger ties with the oil giant: “Saudi Arabia is an important global player, and I think the partnership and friendship between our leaders will bring exciting outcomes,” said Pandor.
“Our President has an objective of increasing foreign direct investment in South Africa and this is at the forefront of the planning for the State Visit and we are looking for investment in South Africa’s key economic sectors including mining & infrastrusture.”#SAinSaudiArabia pic.twitter.com/0VeBcGsQ6a
— Presidency | South Africa 🇿🇦 (@PresidencyZA) October 15, 2022