R20 per litre not far off
INCREASES: EXPECTED TOWARDS THE END OF THIS YEAR AND NEXT YEAR
The rand is forecast to weaken further and oil prices to keep rising.
The two hefty increases in the price of petrol last month and this month have resulted in the highest fuel prices yet in South Africa – R14.72. And the petrol price could hit R20 per litre before the end of next year.
South Africans can expect continued increases in petrol prices towards the end of this year and next year.
In the past, motorists were mostly saved by either a strong rand when the oil price was high, or low oil prices whenever the rand was weak. But forecasts show that the rand is set to weaken over the next few years, while predictions for the oil market indicate much higher oil prices over the next few years.
The outlook for the petrol price is ominous, even considering that forecasting exchange rates and commodity prices are very difficult. The oil price broke out of its narrow trading range of between $40 and $50 about eight months ago and has since increased to above $74.
Forecasting the oil price is notoriously dangerous, but most analysts seem to take the Organisation of the Petroleum Exporting Countries’ latest indications of even higher prices seriously.
A forecast of oil at about $100 per barrel seems reasonable as long as the world economic recovery continues. The New Yorkbased Trading Economics forecasts oil at $97 per barrel at the end of December and at $102 at the end of next year. It expects a high of $124 in July 2020 and then a slump back to $100.
The rand is expected to continue its weaker trend of the last few weeks and to end 2018 at R13.24 per US dollar. According to Trading Economics, the rand would end 2019 on R13.72 and continue weakening to about R15.81 at the end of 2020.
These forecasts exclude any huge economic shocks or political upheaval as forecasts for SA interest rates, inflation and economic growth show only small changes.
Trading Economics expects the gross domestic product growth to improve from the latest 1.5% to 1.9% towards year-end and exceed 2% next year and 2020.
Interest rates on government bonds are expected to increase slightly from current levels of about 8.34% to 8.7% at the end of 2018 and to about 9.8% at the end of 2020. Forecasts for inflation, fixed domestic investment, the level of government debt and business confidence all paint a picture of a gradual improvement in the economy and economic stability.
Any significant deterioration in the economic environment will weaken the rand much quicker.
These quite conservative estimates for the rand and oil price could see an increase in South African fuel prices to at least R17.30 per litre at the end of this year and above R20 per litre before the end of next year. This assumes an average oil price of $100 and an exchange rate of $13.20, and increases of about 10% in the different taxes, levies, transport cost and industry margins.