As deep tensions in the Middle East set in, local fuel price recoveries are suffering from the resultant surge in global oil prices.
This has pushed pricing deeper into an under-recovery compared to mid-month estimates, making a hike in prices for July more likely.
Data from the Central Energy Fund (CEF) for the end of the third week in June shows petrol prices with a 35-38 cents per litre under-recovery.
Diesel, meanwhile, has an even bigger deficit, currently at between 56 and 58 cents per litre.
This is up significantly from mid-month estimates, where under-recoveries had not yet fully reflected the lagged impact of war erupting between Israel and Iran.
These are the projections at the end of week 3:
The sharp rise in under-recoveries reflects the escalating global oil price, which has thankfully been undercut by a relatively stable rand.
While the local unit has depreciated a little against a stronger dollar — following a hold on interest rates by the US Fed — the rand has held up amid global tensions.
According to the Bureau for Economic Research, oil prices surged higher this week and are currently almost 20% above the price at the start of the month.
Markets have been dominated by escalations in the Israel-Iran war, where, as was expected, Iran retaliated following last week’s strikes on nuclear facilities by Israel, leading to a full-blown war.
“Iran directly supplies about 3 million barrels of oil to the market per day – this could, technically, easily be made up by a country like Saudi Arabia, which is still voluntarily cutting back production,” the BER said.
“However, the real concern is that freight in the Strait of Hormuz gets disrupted, through which about 15% of the world’s oil and 20% of LNG travel.”
While oil continues to flow, prices to charter large oil tankers sailing through the strait have already more than doubled from last week, the BER noted, explaining the larger under-recoveries.
Oil prices are currently at around $77 a barrel, up significantly from $64 a barrel at the same time in May.
Bloomberg’s analysis of the market shows that oil prices have been extremely volatile, with prices swinging in a $8 range.
Conditions are a risk of deteriorating further, with markets concerned over a potential strike from the US over the weekend.
Bloomberg said senior American officials had been preparing for the possibility of an attack, although the situation was still evolving, according to people familiar with the matter.
The swings in oil are contributing to a 50 to 73 cents per litre under-recovery in local fuel pricing, with the rand’s relative strength undercutting that by about 15 cents per litre.
Despite the ongoing global tensions, the rand has held its ground around R18.00 to the dollar, managing to stick below this level for much of the week.
The rand weakened on Thursday following the US Federal Reserve’s decision to hold interest rates, which strengthened the dollar.
Economists have noted that the rand’s strength against the dollar has mainly been due to dollar weakness, rather than any inherent strength or reduction of the country’s risk premium.
This is evidenced by the rand weakening against other major currencies like the pound or the Euro over the same periods.
South Africa is still beset by perennial issues, such as stagnant economic growth, high levels of unemployment and achingly slow reforms to turn both around.
The country is expected to post sub-1% GDP growth in 2025 following a decade of going nowhere, while government policies continue to choke businesses and deter investment, despite some bright spots.
The Presidency’s Operation Vulindlela has made some remarkable progress in key areas, such as energy production, but is still lagging on critical reforms in logistics, infrastructure and crime, while adding the country’s crumbling local municipalities to the long list of problems it’s trying to solve.
