Fuel price outlook for August: Another diesel price shock expected

Any further petrol price cuts have been put on hold as the resumption of hostilities in the Middle East wreaked havoc on oil markets this month, while diesel prices are looking set to shoot up in August.

Month-end data from the Central Energy Fund currently points to an unchanged price for 95 Unleaded and a five cent decrease for 93 Unleaded.

It is a far harsher reality for diesel customers, with current data pointing to increases of between R1.75 for 50ppm and R1.91 for 500ppm.

However, a potential wildcard is the Slate Levy, a mechanism that helps compensate fuel companies for oil price fluctuations in the preceding month. If the Slate Levy sees a significant reduction from the current R1.14 per litre, then a more substantial petrol price reduction could be on the cards. However, given that it compensates for oil price volatility, a decrease in the levy is certainly not guaranteed.

The official petrol and diesel price adjustments for August will be announced by the Department of Mineral and Petroleum Resources early next week.

The Middle East war has wreaked havoc on South African fuel prices this year, with sharp increases in April and May followed by some relief in July.

While a peace deal did bring some relief last month, the resumption of hostilities in July means it is likely to be a long time before petrol and diesel prices retreat to pre-April levels.

For the record, a litre of 95 Unleaded petrol currently costs R25.23 at the coast and R26.11 in Gauteng, where 93 Unleaded retails for R25.94. The wholesale price of 500ppm diesel is listed at R23.91 at the coast and R24.78 inland, with 50ppm costing R24.41 and R25.16 respectively.

This comes after significant fuel price reductions this month, with petrol having fallen by R2.01 per litre and diesel by between R3.14 and R3.58 per litre.

What’s going on with oil prices?

International oil prices have been extremely volatile this month, largely because markets have been swinging between fears of a Middle East supply shock and hopes that diplomatic efforts will prevent one.

Oil prices started the month at three-month lows of around $72 per barrel. However, the subsequent escalation in Middle East tensions, with the US and Iran trading fire, led to a price surge, with Brent eventually moving above $100 as markets priced in risks to flows through the critical Strait of Hormuz passage.

However, hopes of another truce have pushed prices down to around the $88 mark this week, following a drop of more than 8% in a single session.

How things will transpire in the coming months is anyone’s guess.