ShowMe South Africa

The new year brings unwelcome news for South African motorists, as petrol and diesel prices are poised to increase due to a weakened rand against the dollar. This week, the rand’s slide beyond R18.68/$ has turned fuel recoveries negative, signaling imminent price hikes.

The Department of Petroleum and Mineral Resources has announced adjustments to fuel prices, effective Wednesday, 1 January 2025. These changes reflect rising global petrol prices and a weaker rand during December compared to November, resulting in an under-recovery and subsequent price increases.

January Fuel Price Adjustments:

According to the Central Energy Fund (CEF), international petrol prices rose during the review period, while diesel and illuminating paraffin prices experienced a decline. However, the rand’s depreciation, with an average exchange rate of R18.11/USD compared to R17.93/USD previously, has exacerbated fuel cost increases. The weaker rand, a reflection of global and local economic pressures, remains a significant driver of these adjustments.

The Self-Adjusting Slate Levy Mechanism will keep the Slate Levy on petrol and diesel unchanged at 0.00 cents per litre from 1 January 2025. Despite a reduction in illuminating paraffin prices, consumers will face increased costs for most fuel products as the new year begins.

Broader Market Implications:

The upward trend in fuel prices is expected to persist into 2025, driven by both currency fluctuations and global oil market dynamics. OPEC (Organisation for Petroleum Exporting Countries) has delayed increasing oil production, maintaining its production cuts until the end of 2026. These actions sustain upward pressure on oil prices, with OPEC’s decisions playing a critical role in stabilizing the market and ensuring higher prices to bolster state revenues.

Key highlights from OPEC’s recent developments include:

• The group’s members collectively supply around half of the world’s oil, maintaining significant influence over the global market.
• Current supply cuts amount to 5.86 million barrels per day (bpd), roughly 5.7% of global demand. These include:
  • A 2 million bpd reduction by the entire group.
  • Voluntary cuts totaling 3.85 million bpd by eight member countries in two stages.
• The gradual unwinding of a 2.2 million bpd cut will begin in April 2025, with monthly increases of 138,000 bpd over 18 months, ending in September 2026.
• The United Arab Emirates will increase output by 300,000 bpd from April 2025 to September 2026, revising the earlier plan to begin in January 2025.

Despite these cuts, the Brent crude oil benchmark has largely remained in the $70 to $80 per barrel range, trading near $71 as of Thursday. This is a rebound from its 2024 low of below $69 in September. While OPEC’s measures help prevent oversupply, they also leave the market vulnerable to shocks, as limited excess capacity reduces the group’s ability to buffer against disruptions.

Looking ahead, as global markets contend with economic uncertainties and potential geopolitical risks, South African motorists face a challenging start to 2025. The combination of a weakening rand, OPEC’s prolonged production cuts, and limited room for global oil price relief suggests fuel price hikes will remain a persistent burden. These factors underscore the complex interplay of local and international market dynamics influencing the cost of fuel at the pump.

BT | DI