Small fuel price drop today, dare we hope for another?

If the rand continues to strengthen and oil prices remain stable, SA could see a further cut ahead of the festive season.
The rand rebounding after Moody’s decision not to downgrade SA’s credit rating has translated into good news at the pumps. Image: Moneyweb

The price of all grades of fuel dropped on Wednesday following the monthly adjustment based on local and international factors including weaker oil prices in October and the rand/dollar exchange rate.

Mineral Resources and Energy Minister Gwede Mantashe said in a statement on Tuesday that all grades of petrol (both 93 and 95 ULP/LRP) would drop by 13 cents a litre.

Read: How the fuel price has been politicised

Diesel drops by 16 cents and 14 cents a litre for 0.05% sulphur and 0.005% sulphur respectively, while the wholesale price of illuminating paraffin declines by 25 cents a litre. The retail price of LP gas is down by 30 cents a kilogram.

Read: Fuel prices mostly to blame for increase in cost of living

These decreases mean the retail price of 93 octane ULP is now R15.48 a litre in Gauteng, while 95 ULP is R16.08 a litre. The coastal price of 95 ULP is now R15.44 a litre. The price of diesel is now R14.70 a litre for inland provinces and R14.13 a litre for coastal provinces.

“The main reason for the fuel price decreases is the lower oil prices during the period under review when compared to the previous one,” said Mantashe.

Gwede Mantashe, Minister of Mineral Resources and Energy. Image: Moneyweb

“The average Brent Crude oil price decreased from $62.96 per barrel to $59.73 per barrel during the period under review [October]. The oil prices edged lower as concerns about slower global economic growth overshadowed signs of a softening in the trade war between the United States of America and China,” he added.

Mantashe noted that the rand appreciated on average against the dollar during October. However, the average rand/dollar exchange rate for October (R14.93) was higher than that of September (R14.84). “This led to a higher contribution to the basic fuel prices on petrol, diesel and illuminating paraffin by more than four cents per litre.”

Festive season follow-up?

With Brent Crude currently trading at more than $61 a barrel, the jury is out on whether we will see a further drop in the SA fuel price in time for the festive season in December. However, Moody’s Investors Service’s decision not to downgrade SA’s credit rating to ‘junk status’ on Friday (November 1) has seen the rand rebound by more than 20 cents below the key R15 to the US dollar level. It was trading at R14.76 to the dollar at the close of the markets on Tuesday.

Automobile Association spokesman Layton Beard tells Moneyweb it is very tricky to speculate if there will be a further fuel price decline in December. “Whatever happens to the oil price and the rand from this point affects the price motorists will be paying at the pumps at Christmas. It remains to be seen whether this month’s reductions will continue for the rest of the year.”

Beard says considering the volatility of the rand and the slight strengthening in the international oil price, the fuel price could go either way.

“We will have a clearer indication by mid-November whether there will be a further decrease or not.

“Despite the rand’s gains following Moody’s reprieve on Friday, it is still too early to call.”

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Statistically, the fuel price has dropped about 60% of the time over the past 12 years for Nov > Dec period

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