Rand weakness threatens to undo recent fuel price stability according to the Automobile Association of South Africa (AA) which has provided comment on unaudited mid-month fuel price data released by the Central Energy Fund (CEF).
Fuel price predictions for September 2018 are on edge as Turkey’s recent economic woes have had a negative impact on the Rand’s strength. Initially, mid-month data suggested that declines in local fuel prices were on the cards for next month, but the predictions have now taken a turn for the worse.
"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.
A fall of 2 and 4 cents per litre for petrol and diesel respectively was a possibility but the daily exchange rate for the Rand fell nearly 9% against the US dollar in 2 days after the news of Turkey's troubles broke, and remains well above its recent trend.
This means that fuel prices are now more likely to rise come month-end and the determining factors are beyond South Africa’s control. "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 Association says.
"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."
The AA says motorists should not count on the moderate trend of the past 6 weeks continuing, and advises them to economise where at all possible.
"The extent and duration of the recent currency weakness will be pivotal in South Africa's short-term fuel price outlook," it concludes.