The SA Daily
25 May 2020
Soft oil favours consumer
- The SA consumer will have had much needed relief from soft international oil prices incurring a cumulative reduction of R4,08/litre (for 95 unleaded) so far this year. The sharp drop in global oil prices, which has offset the weaker rand, resulted in the rand price of oil contracting by 41.6% y/y and 51.2% y/y in March and April respectively.
- Still, despite weak global demand and global GDP destined for a deep decline this year, the oil price has recovered somewhat from USD$19.33/bbl as at 21 April. The global oil price is at USD$35,13/bbl currently, and averaged USD$26.63/bbl in April. This recovery, despite weak global demand, is attributable to oil crude production cuts. The OPEC + group had agreed in April to reduce crude oil production by 9.7mb/d, as of 1 May 2020, for the initial period of two months that will conclude on 30 June 2020. Per the agreement, for the subsequent period of six months, 1 July 2020 to 31 December 2020, the oil crude production cut will be 7.7 mb/d.
- Oil is however likely to remain below its 2019 average of USD$64, averaging USD$50.5/bbl in 2021 and USD$55.00/bbl in 2022, per the Bloomberg consensus. The SARB is assuming an average global oil price of USD$45.0/bbl for 2021 and USD$50/bbl for 2022.
- Domestic fuel prices should therefore remain favourable, especially as we expect the rand to recover further as global financial turmoil eases, boding well for SA consumer price inflation and as the economy reopens, with consumers and businesses reaping the benefits of far lower fuel costs.
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