The Automobile Association (AA) has warned that the “substantial rand weakness” could undo the recent fuel price stability, based on the unaudited mid-month fuel price data released by the Central Energy Fund (CEF).
In a statement on its website, the AA said almost two months of modestly improving rand strength ended in a dramatic reversal as the local currency was caught up in the emerging market chaos triggered by Turkey’s economic difficulties.
Until the crisis hit, the fuel price picture for August had been flat, with data predicting modest declines in all fuel types at month-end, thanks to reasonable stability in the rand and international oil prices, says the AA.
Mid-month data suggests a fall in petrol of around two cents, with four cents and eight cent drops predicted for diesel and paraffin respectively.
However, the daily exchange rate for the rand fell nearly nine percent against the US dollar in two days after the news of Turkey’s troubles broke, and remains well above its recent trend.
This has tipped petrol towards a likely increase at month end, and substantially offset the gains made by diesel and paraffin.
The fuel price trajectory towards the end of August would depend on factors largely beyond South Africa’s control, says the AA.
Turkey is resisting tighter fiscal policy and an end to the standoff with the United States over the detention of one of the latter country’s citizens.
The tendency of investors to regard emerging markets as a single basket means that further negative news out of Istanbul is likely to be bad for the rand and South Africa’s fuel users too.
Source: News24
