17 January 2016

South Africa: Rand Weakness Takes Shine Off Fuel Price

If the rand/dollar exchange rate had remained flat in 2015, South Africans would currently have been paying on average 45 cents a litre less at the pumps, the Automobile Association (AA) said on Friday.

This estimate is based on unaudited mid-month data released by the Central Energy Fund (CEF).

"South Africa's sagging rand/US dollar exchange rate continues to take the shine off ongoing international oil price weakness," the AA explained.

"This deficit has widened by another 32 cents to 40 cents in the first two weeks of January 2016, turning what would have been a 24 cents a litre drop in petrol at the end of the month into a potential increase of up to 16 cents."

As for diesel, the AA said an oil price benefit of around 90 cents a litre to the diesel price has instead been muted to around 58 cents a litre by the exchange rate, with illuminating paraffin showing a similar picture.

"The exchange rate's ongoing weakness might mean trouble for the fuel price if oil prices begin to tick up again," the AA said.

"At the current rand/US dollar exchange rate, a return to oil's highs of 2013 and 2014 would result in the fuel price approaching R20 a litre, putting yet more pressure on South Africa's already-strained economy."

The rand weakened in early trade on Friday, erasing gains of the previous session, as global risk aversion caused by fears over the health of the global economy on falling oil prices hit risk assets, Reuters reported.

By 17:00 on Friday the rand was trading at R16.68 to the dollar.

Source: Fin24

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