Diesel prices will see a sizeable drop this week, thanks to a strong November for the rand amid declining international oil prices – and despite the recent turmoil in the markets around president Cyril Ramaphosa.
The latest weekly forecast for fuel prices by the Central Energy Fund shows a significant drop coming for diesel on Wednesday (7 December), with prices expected to come down by as much as R1.71 a litre.
Petrol, meanwhile, will likely go up by around 24 cents, the group said.
The forecasts are not the official changes – which will be announced by the Department of Mineral Resources and Energy before Wednesday – but serves as a weekly overview of the direction fuel prices are taking.
The latest forecast reflects the market on 2 December 2022:
While the rand has struggled over the last few days due to the political uncertainty presented by the section 89 findings against president Cyril Ramaphosa and speculation that his resignation was imminent, this falls outside of the assessment window for the monthly review.
The losses to the rand in recent sessions are also still not enough to put the currency back into the R18/$ territory experienced in prior months, as such, not enough to completely reverse the diesel price drop into a hike.
According to the CEF, even at the current weaker levels, the rand is still contributing to an over-recovery in fuel prices.
The rand took a beating this week after parliament’s section 98 panel made adverse findings against president Cyril Ramaphosa over the Phala Phala farm scandal, where it was said that prima facie evidence existed that the president may have contravened the country’s laws.
Amid speculation that the president was going to resign, markets were swamped with uncertainty, causing the rand to buckle even as other emerging markets rallied from more positive sentiments coming out of the US Fed, and indications that China would ease its zero-Covid policies.
According to Investec chief economist Isabel Bishop, the market’s visceral reaction to the report was not tied to the report itself or the allegations therein – which she said are inconclusive and the president’s allies have said are weak – but rather that Ramaphosa’s exit would open the door for the so-called “radical economic transformation” (RET) faction of the ANC to step in.
“Markets feared the president would resign, potentially leaving the way open for destabilising RET forces to take over, which would damage the economy,” she said.
The president’s spokesperson has since confirmed that Ramaphosa will not be resigning and intends to challenge the report in court. The president and his allies will also take the political fight to the ANC factions at the party’s national executive committee and coming elections.
This does not mean the rand is out of trouble waters, however.
According to TreasuryOne, the lack of a suitable and credible successor to Ramaphosa, should he step down or be removed, unnerved markets, and the rand at one point fell 5.3% against the dollar, 5.6% against the euro, and 6.25% against the pound.
“The local currency is likely to be susceptible to any news from the government, and we could still be in for a bumpy ride in the short term. The rand is the worst-performing EM currency by some distance as its peers gain on the back of the risk-on mood and softer Dollar.”