International oil prices tumbled this week on news that the US and Iran have signed a critical two-month truce, paving the way for talks on a permanent peace deal, but those expecting South African fuel prices to return to their pre-April levels have a long wait ahead.
While the price of Brent Crude oil has hovered around three-month lows, holding just below the $80 per barrel mark for most of this week, it remains somewhat higher than the $69 average that determined our fuel prices in March, which was the last ‘normal’ month for consumers. As an unpleasant reminder, between April and June, diesel rose by up to R10.16, and petrol by R7.72.
Another significant factor is that South Africa’s Treasury intervened with a R3 temporary tax reprieve in April, which was halved in June, while July will see the measure fall away completely.
Thankfully, even before the truce was announced, oil was tracking lower than in the previous month, and as a result, some healthy over-recoveries have developed on both petrol and diesel, according to the latest snapshot received from the Central Energy Fund (CEF).
These point to potential decreases in the region of R2.85 for petrol and reductions of between R4.46 and R4.83 for diesel. Yet these fuel cuts could be limited to between R1.25 and R3.33 once the additional R1.50 tax penalty is added back to the equation. However, a lower Slate Levy could mitigate this to a degree, if July’s figure falls significantly below the current R1.58 penalty that is worked into June’s fuel prices.
Also, given that oil only fell to its current levels around the middle of June, the full effects of this price plunge will not be seen in July’s fuel prices, which will reflect an average of the whole month.
If oil remains at this level or lower, August could see further relief, but there are many risks to the downside as the Middle East situation remains volatile and there has yet to be any permanent resolution on key sticking points such as Iran’s nuclear programme. Israel’s continued attacks on Hezbollah in Lebanon could further complicate US negotiations with Tehran.
Notwithstanding that any resumption of hostilities between the US and Iran could send oil prices surging past $100 per barrel once again, reopening the crucial Strait of Hormuz, whose blockage caused oil prices to spike earlier this year, is not a quick or simple process.
On Wednesday, at least two Iranian supertankers were seen exiting the previous US Navy blockade perimeter, carrying a total of 3.8 million barrels of Iranian crude oil between them, Tanker Trackers announced on X. US President Donald Trump said earlier this week that the Strait would fully reopen “toll-free” from Friday, although uncertainty still exists over Iran’s stated intention to impose shipping fees.
Hundreds of oil tankers have been stuck inside the Gulf since the US attacked Iran on February 28.
Shipping groups have warned that uncertainty remains about the steps towards reopening and how long it could take for the strait to be cleared of mines.
“Key operational questions remain unresolved, including transit security, navigation fees and safe passage arrangements,” shipping tracker Kpler said on Tuesday.
