Gordhan jitters, oil strength slam brakes on fuel price drop

Renewed oil price strength and a turnaround in the rand/US dollar exchange rate have put the brakes on the substantial fuel price drops suggested by mid-August data.

This is according to the Automobile Association (AA), which was commenting on unaudited end-August fuel price data released by the Central Energy Fund.

The AA said in a statement on Tuesday that a stronger rand would have cushioned the increase in international petroleum prices, but this possibility has now dissipated with the ongoing political turmoil surrounding Finance Minister Pravin Gordhan.

The AA predicted on August 15 that the petrol price would continue its downward trend, with an estimated drop of 69 cents a litre based on the rand's strength. Diesel was predicted to decrease by 94c/l and illuminating paraffin by about 92c/l.

However, with the rand reacting negatively to the Hawks' circling of Gordhan over his involvement in the so-called rogue unit at the South African Revenue Service during his time as commissioner, the AA now sees the pump price of petrol only dropping by 25c/l. Diesel and illuminating paraffin are now both expected to cost only 54c/l less.

"The stronger oil price might have been kept in check more effectively had the rand not sagged so sharply against the dollar in the wake of developments around the Minister of Finance, Pravin Gordhan, being the subject of further investigation by the Hawks," the AA said.

International petroleum prices have put in a surprising rally since the middle of the month, the AA said.

The AA warned that should the rand not strengthen again, impact of the significant devaluation of the rand against the US dollar would become more apparent towards mid- and end-September.