Rand rout threatens fuel price stability, warns AA

Substantial rand weakness could undo recent fuel price stability, the Automobile Association (AA) warned on Wednesday.

It was commenting on unaudited mid-month fuel price data released by the Central Energy Fund (CEF).

"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," the AA said in a statement.
 
"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."

According to the AA, mid-month data suggests a fall in petrol of around 2c, with 4c and 8c drops predicted for diesel and paraffin respectively.

However, the daily exchange rate for the rand fell nearly 9% 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, in the AA's view.

It said the fuel price trajectory towards the end of August would depend on factors largely beyond SA's control.

 
"Turkey is resisting tighter fiscal policy and an end to the standoff with the US over the detention of an American citizen," the AA said.
 
"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 SA's fuel users too."

The AA said motorists should not count on the moderate trend of the past six weeks continuing and advised them to economise where at all possible.

"The extent and duration of the recent currency weakness will be pivotal in SA's short-term fuel price outlook," it said.

At the beginning of August, cheaper international oil prices slammed the brakes on significant increases in fuel prices for the month. The price of both grades of petrol increase by 1c a litre, while the price of diesel went down by 4c a litre.

The slight hike took the per litre price of 95 octane unleaded petrol to R15.54 on the coast and R16.03 inland.

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