SA petrol price to decline by a massive 99c/l in August, with a further large decrease possible in September.

On Friday, 29 July 2016, the Department of Energy announced that the petrol price (95 and 93 ULP & LRP) will decrease by a very substantial 99c/l with effect from Wednesday, 3 August 2016. This means that the price of 95 Octane (ULP, Gauteng) will now cost R12.35 per litre. The price of diesel will decrease by 74c/l (0.05% sulphur), while the price of paraffin will decline by 88c/l (retail price), and gas by 160c/kg.

During the latest fuel price review period, from 1 July 2016 to 28 July 2016, the Rand strengthened against the US Dollar, on average, when compared to the previous period. The average Rand/US Dollar exchange rate for the period was R14.4407 compared to R15.1553 during the previous month. The strengthening of the Rand against the US Dollar decreased the contribution to the Basic Fuels Price on petrol by 25.40 c/l. Fortunately, the international price of oil also fell during the month, declining from $50.63/bl on 1 July 2016 to $43.15/bl on 28 July 2016. The decline in the oil price subtracted a substantial 73.07c/l from the Basic Fuel Price. The net effect is a decrease of 99c/l in the petrol price.

Encouragingly, the daily over recovery on the petrol price on 28 July 2016 was a massive 134c/l. This means that at this stage it is entirely possible that the petrol will decline again in September 2016, and possibly by as much as 35c/l. Clearly, though, a lot can happen to the exchange rate and oil price in a month.

The petrol price decrease in August 2016 will reduce the monthly consumer inflation rate by a very significant 0.4 percentage points, which will help to ease inflationary pressure and allow the Reserve Bank to leave interest rates unchanged for an extended period. Since the peak in April 2014, the petrol price has now declined by total of R2.00/l or 13.8%. Unfortunately, other cost pressures are still likely to push SA consumer inflation over 7% in late 2016, but at least the upcoming spike in inflation appears likely to be much more modest than what was envisaged in early 2016.

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