Syrian crisis sparks fuel price jitters
The record petrol price of R13.55 a litre may look like a bargain by Christmas — unless there is peace in Syria and Egypt, and a shortlived strike season.
While the retail price of all grades of petrol will drop by 5c a litre on Wednesday, this modest relief may be temporary, Mohammed Nalla, head of strategic research at Nedbank Capital, warned. Diesel prices will rise by 13.8c a litre, the Department of Energy said.
Nalla said a weakening rand and climbing oil prices might lead to petrol price jumps of 40c to 50c a litre next month with further increases possible depending on economic conditions in South Africa and main global drivers including the US, China and Europe, as well as geopolitical developments in the Middle East.
Even though Egypt and Syria are not major oil producers, political upheaval in Egypt is placing a premium on global oil prices, as an estimated 40% of global oil moves through the Suez Canal. American military intervention in Syria will increase the risk of retaliation by Iran, which controls the Strait of Hormuz, the strategic waterway through which 20% of global oil was shipped last year.
“Even though the UK’s Commons has voted against taking military action against Syria, a unilateral attack by the US has not been ruled out. Currently, we see the oil price easily moving to $127, $128 a barrel if it breaks the $120-mark. If there is bad news, oil can go to $148 a barrel,” Nalla said. Brent crude oil was trading at $115.15 a barrel on Friday.
SocGen said it expected a move to $125 a barrel in coming days on fears over Syria, and that levels around $150 could be possible in the event of supply disruption.
As if the higher dollar-oil prices were not bad enough, South Africa also sat with a rand that was weakening against the dollar, Nalla said.
This week, the rand hit four-and-a-half year lows against the dollar, making it the worstperforming currency of 16 tracked by Bloomberg. It was trading 1% lower at R10.26 on Friday, and had lost 18% of its value since the start of the year. It can go as low as R11 against the dollar by year-end, according to Nedbank Capital.
The Federal Reserve’s decision to gradually start reducing the liquidity it has been pumping into the markets to kick-start the US economy hit many emerging-market currencies as investors flee to safer havens, with the Indian rupee falling to its lowest levels on record against the dollar this week.
However, South Africa’s weak macro-economic conditions — growth for the second quarter totalled 3%, slow private sector credit growth, low business and consumer confidence and a wider-than-expected trade deficit were reported for July — and fears over protracted economywide strikes had exacerbated the rand’s volatility and weak performance, Nalla said.
A drop in production in key export industries, including the automotive sector, where about 30 000 workers downed tools two weeks ago, and the gold mines, where the National Union of Mineworkers is set to go on strike on Tuesday night, will have an impact on the country’s foreign currency earnings.
Comments by Finance Minister Pravin Gordhan on Friday did not help to increase stability. The currency gained as much as 1.5% after the Wall Street Journal reported Gordhan was considering steps to soften the rand’s decline, which he described as overdone. The comments were later denied by Treasury to Bloomberg, sparking a renewed sell-off in the currency.
Despite the inflationary effect of a higher petrol price, interest rates were expected to remain unchanged until the end of 2014, said Kamilla Kaplan, economist at Investec.