Brent crude oil prices have decreased compared to recent highs, but this does not mean that South Africans will avoid another rise in fuel prices at the beginning of October. The increase in fuel prices in South Africa in October is largely determined by previous fluctuations in oil prices and the Rand exchange rate, which limits the impact of the recent decline.
Brent crude continues to trade above the $100 per barrel mark, reaching $101.08 per barrel on Monday. Regarding fuel prices in South Africa, current data indicates a possible increase to 2.78 Rand per liter for petrol and 3.00 Rand per liter for diesel. Minister of Mineral Resources and Energy Gweed Mantshe recently confirmed in Parliament that the government does not plan immediate intervention to mitigate the impact of rising fuel prices on households and businesses.
Signs of supply recovery are visible in the global oil market in the Middle East: Saudi Arabia's exports are recovering, and flows through the Strait of Hormuz reached a six-month high, according to Bianca Botess, Managing Director of Citadel Global. She noted that this outweighs the ongoing conflict in the Persian Gulf, while gold remains stable, and the dollar holds near recent highs following the Fed's rate hike last week.
Dr. Lerato Ntuli, an economist from Anchor Capital, explained that the drop in Brent prices from approximately $106 per barrel in mid-September to nearly $102 per barrel was supported by signs of de-escalation in regional tensions, including reduced risks of disruptions around Saudi Arabia's energy infrastructure and the redirection of some crude oil supplies via alternative sea routes.
South Africa's Basic Fuel Price (BFP) is calculated daily by the Central Energy Fund (CEF), and the monthly fuel adjustment is based on the average daily BFP and the average Rand-dollar exchange rate for the review period. Ntuli emphasized that this means domestic fuel prices lag behind international price movements by about a month. As the review period for October nears its end, most of the monthly pricing has already been determined, limiting the extent of the impact of the recent oil price drop on October prices.
Furthermore, although the oil price decrease is significant, Brent remains substantially above $87.88 per barrel from the previous review period. Ntuli added that a more important consequence is the fuel price adjustment in November. She suggested that if Brent remains at the current level or falls further by the end of October, and without a resumption of geopolitical escalation or significant weakness in the Rand, the next pricing cycle will start from a lower base, improving prospects for fuel price reductions by the end of the year.
Currently, the Rand is trading at around 16.30 Rand against the US dollar and has maintained relative stability despite the recent oil shock. However, currency risks have increased. The Federal Reserve's tightening cycle has narrowed the interest rate differential between South Africa and the US. With the South African Reserve Bank's repo rate at 7.00% and the Fed funds rate in the range of 3.75%-4.00%, South Africa's nominal yield advantage has narrowed.
Ntuli warned that any further Fed rate hikes this year could further compress this gap, potentially reducing support for the Rand. Although Brent has fallen from recent highs, it is still about 13% higher than at the end of August. High oil prices combined with the prospect of a strengthening US dollar increase the risk of renewed imported inflation pressure due to rising fuel and transport costs. The Anchor Capital economist also believes that August inflation statistics are unlikely to fully reflect the current oil shock, as the largest petrol price increases will begin affecting September CPI data, and the expected fuel price rise in October will appear in October inflation reports published in November, meaning that much of the fuel-driven inflationary momentum is still in process.
Ntuli predicts that SARB will raise the repo rate by 25 basis points at the upcoming MPC meeting, as high oil prices, persistent core inflation, potential Rand weakness, and tighter Federal Reserve policy collectively strengthen the arguments for preemptive monetary tightening. On Monday, the Rand traded more confidently, supported by falling oil prices and more stable global risk appetite, with attention focused on the SARB's decision on Wednesday. On Monday afternoon, the rate stood at 16.25 Rand per dollar, 18.68 Rand per euro, and 21.78 Rand per pound sterling.