Strong rand fuels petrol price surprise for motorists

Cape Town - Fuel prices are set for a hefty drop after the rand's strong performance against the US dollar.

Commenting on unaudited month-end fuel data released by the Central Energy Fund, the Automobile Association said that despite higher international oil prices over December, all grades of fuel are set to fall at the next fuel price adjustment.

The AA expects the price of petrol to fall by up to 34 cents a litre, diesel by 26c and illuminating paraffin by 28c.

The expected relief will break five consecutive increases, which took the pump price of 95 octane petrol to R14.76 inland and R14.27 at the coast.

The rand, which was still trading at R13.80 to the greenback at the start of the month, reached an intra-day high of R12.24 on Thursday on the Cyril Ramaphosa factor, strong commodities prices and a weaker dollar.

By 15:16 the rand was trading at R12.35/$ and Brent crude oil was selling for $65.88 a barrel.

The strength of the rand has caught many economists by surprise and its rally looks set to continue, according to James Paynter, founder of Dynamic Outcomes and a financial market analyst. 

"If one looks at the weak fundamentals, the rand should actually have been weakening, but it has done the opposite. This is because the markets do not move based on fundamentals or rational thinking, but by mass human sentiment," said Paynter.

TreasuryOne dealer Wichard Cilliers said a mere six weeks ago the local unit was trading at R14.40, and at the time everyone was worried about ratings agencies and downgrades.

"How much has really changed to South Africa in the past six weeks?" he asked.

He said the confidence Cyril Ramaphosa's election as ANC president has brought to the SA market is clearly massive. Ramaphosa defeated President Jacob Zuma's ex-wife Nkosazana Dlamini-Zuma in the race to the top job on December 18.

The AA said in its statement on Thursday that the rand – and, by extension, fuel prices – has proven vulnerable to political developments in South Africa over the past year.

"Cyril Ramaphosa's political and fiscal position ahead of the February 2018 Budget Speech is likely to be the most influential determining factor for fuel price movements in the short term," the AA said.

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