Economists have raised concern that a higher international oil price could lead to more fuel price increases in South Africa.
The concern stems from an oil price of over 76 dollars a barrel recorded last week for the first time since October.
Economists have warned that this could lead to higher fuel prices felt similar to the first half of 2024.
Chris Harmse, the consulting economist of Sequoia Capital Management, said that the price of Brent crude oil being above 76 dollars a barrel poses a substantial risk for South Africa.
“It reached 77 dollars last week, and that is already 7 dollars higher than it was in October. The Rand has also been weaker since the presidential victory of Donald Trump. The market policies of Donald Trump could also impact the Rand, which is already 100 cents more than it was before the US Presidential election.”
Harmse added that current signs indicate a 64 cent increase in the fuel price.
“Diesel could also rise by 70 cents a litre. This could also cause an increase in inflation and possibly lead to an interest rate hike, which could be a very worrying situation for consumers.”
Johann Els, Old Mutual Group chief economist, said that the combination of a slightly higher oil price and the weaker Rand-dollar exchange rate has meant that there has been an under-recovery on the petrol price.
“Its current status indicates an increase of around 73 cents a litre, and on an average basis from late December, the price indicates a 64 cents a litre increase in the fuel price for February. It's still early days, and we will have to just wait and see what happens with the fuel price.”
Els added that signs are pointing to a fuel price increase in February.
“The oil price is definitely higher and is at levels last seen in October. The good news is that it is still lower than 80 dollars a barrel. The last time it was at 80 dollars was in late July, so it has ticked up, but it's still in the range of 70 to 76 dollars a barrel. Global economies are still slowing, but I still expect the oil price to remain around 70 to 76 dollars throughout the year. Although we will see a fuel price increase in February. I still feel that the fuel price will be stable throughout 2025.”
Professor Bonke Dumisa, an independent economic analyst, said that we haven’t seen the oil price reach this amount in a long time.
“Definitely anything above 76 dollars a barrel is not good news and could well lead to a fuel price increase in February. The Rand being weaker adds more pressure, and this will lead to more fuel price increases.”
Dumisa added that last year we saw a situation where the fuel price increased in the first half of the year. “We could be heading for a similar situation in 2025 where the fuel price will increase in the first half of the year and then drop in the second half. We just have to wait and see how it pans out.”
Waldo Krugell, an economics professor at North-West University, said that the oil price goes up when the quantity demanded increases or quantity supplied decreases. “In the current case, quantity demanded has increased due to cold weather in the northern hemisphere, where oil is used for heating. There is also the prospect of increased Chinese demand following more stimulus measures. In addition, there is the concern that supply may be limited if President Trump pursues further sanctions against Iran. A higher oil price increases our fuel prices and feeds through to higher inflation.”
Krugell added that the possible counterbalance is the Rand-dollar exchange rate. “Unfortunately, the Rand has traded weaker against the dollar over the past month, which will also add to upward pressure on the fuel price.”
Business Report