A higher global oil price and a weaker rand could lead to yet another fuel price increase in March, economists have warned.
Bureau for Economic Research (BER) economists flagged the likelihood of rising fuel prices on Monday, noting that a move by Russia to cut oil production in retaliation for sanctions would further heighten the price of oil.
“Global markets were in risk-off mode last week amid concerns that the continued strength in the US labour market could result in the US central bank keeping their policy interest rate higher for longer. Geopolitical tensions between the US and China also contributed to investor unease,” the BER said.
“As a result, major equity indices ended the week lower (S&P 500 in the US down by more than 1%), while the US dollar was on a firmer footing versus the euro. Against this backdrop, local financial markets were under pressure, with the rand losing further ground against major currencies, and government bond yields ending the week higher,” the economists said. Regarding major commodity prices, it was a poor week for precious metals, while the recent extreme volatility in the oil price continued.
“After already moving higher earlier in the week, Brent Crude rose by more than 2% on Friday after Russia said it would cut oil production by 500 000 barrels a day in March. This move retaliates against western energy sanctions but will arguably harm Russia the most as it will reduce the country’s export revenue,” the BER said.
Opec delegates signalled that they would not take any action to fill the void created by Russia’s cuts.
“Even before Friday’s adverse oil and rand moves, the under-recovery on the domestic petrol price was more than R1/litre, implying that a sizeable fuel price increase is on the cards for March,” the economists said.
The latest available data from the Central Energy Fund points to an under-recovery of R1.20 a litre for petrol and around 40 cents a litre for diesel, signalling price hikes in March, unless there is a significant change in the market before month end.
