Fuel price set to drop in May as VAT hike kicks in
Experts expect motorists to have some relief in May as a petrol price cut is on the cards
Motorists in South Africa could expect to have some relief next month as a fuel price cut is on the cards on the back of easing global Brent crude oil price, benefitting consumers who will be facing the 0.5 percentage point VAT rate hike from 1 May.
The predicted petrol price drop in May would mark the third consecutive drop in fuel prices in 2025.
Old Mutual Group chief economist, Johann Els, on Friday said there has been an over-recovery on the petrol price of around 44 cents a litre.
'The weakness that we have seen in the rand over the last two weeks has been far overshadowed by the much lower oil price. So the rand price of a barrel of oil is down 16% since the beginning of April. That has led to the over-recovery in the petrol price,' Els said.
He added that if conditions continued in the same direction, a fuel price cut of around 40 cents a litre was expected at the beginning of May.
'This is despite the weaker rand exchange rate that we have seen recently. The rand has since strengthened and stabilised from its weaker levels, which is good news for motorists and the economy,' Els said.
As of 16 April, the Central Energy Fund reports a projected reduction in fuel prices of 21 cents for 95 unleaded petrol, 19 cents for 93ul and approximately 40 cents for diesel.
However, the rand has also come under pressure during this period, averaging above R19 to the US dollar in April compared to R18.27/$ in March.
Efficient Group chief economist Dawie Roodt is expecting a fuel price cut of around 20 cents a litre in May.
'The main reason for this is a significant reduction in international oil prices. Unfortunately, the rand weakening has pushed up the price of international oil. However, the impact is not enough to stop a fuel price cut of 20 cents per litre,' Roodt said.
Waldo Krugell, an economics professor at the North-West University, said the analysis of the movement of the average over- or under-recovery of the basic fuel price showed that the lower Brent crude oil price has a bigger effect than the weaker rand-dollar exchange rate by mid-April.
'There is an over-recovery for all grades of fuel and we could see lower prices at the pump. Petrol could fall by between 17 and 20 cents per litre and diesel prices by 40 cent,' Krugell said.
Tracey-Lee Solomon, an economist from the Bureau for Economic Research, said that since Liberation Day import tariffs on 2 April, oil markets have been hit with a double blow.
'Concerns over global economic growth have dampened demand expectations, while OPEC+'s decision to unwind output cuts more rapidly than anticipated has heightened fears of a supply glut. As a result, oil prices have declined significantly,' Solomon said.
'Brent crude has averaged around $67 (R 1261) per barrel (/bbl) so far in April, down from an average of $71.74 (R1 336)/bbl in March.'
Investec chief economist, Annabel Bishop, said that Brent crude oil's price dropped to $63.33 (R1185)/bbl last week, as the oil price has collapsed from $81.30 (R1 524)/bbl three months ago.
Bishop said the rand has seen a pullback which, along with the drop in the oil price, will mute effects.
'That is, if the oil price remains around current levels for the rest of this month, and the Rand does the same, or strengthens further against the US dollar, then the effect on imported petroleum products, and so the petrol price, will be limited,' Bishop said.
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