R1 petrol cut likely with oil price stabilising, say economists

“We're looking at a petrol price cut of maybe just under R1, but it will be based on the petrol over-recovery and then dependant on whether the Department of Minerals and Energy [DME] changes wholesale or retail margins.

“The oil price is massively off its highs from about two months ago [and is currently standing at $115 per barrel],” said economist at Econometrix Treasury Management (ETM), Russell Lamberti, speaking to BuaNews, Thursday.

Lamberti said the declining oil price was not a one way bet, but that oil prices would likely find a base at the $110 per barrel level.

The decreasing oil price had to do with geopolitical supply tensions, slowing growth in Organisation for Economic Co-operation and Development (OECD) countries, and expectations of China's 9% economic growth this year, Lamberti said.

With oil prices likely to stay the same for the moment and if the Rand stayed at about the R7.70 level to the dollar, then motorists could expect petrol to remain within the R9-10 level for some time.

“There has also been a sharp retrace in commodity prices effecting minerals such as gold, platinum and copper.

“The softening commodity prices have shown the Reserve Bank that inflation risks have not disappeared entirely but have softened,” Lamberti highlighted.

Chief economist at Investment Solutions, Chris Hart, told BuaNews the expected decrease in the prices of petrol and diesel at this stage is very encouraging for the economy.

“Now the difficult question is whether the oil price is in a temporary pull-back or not?

“But the oil prices [after dropping significantly in the past month] does seem to have found a [stabilising] base,” Hart said.

With regard to the recent decision by the Monetary Policy Committee (MPC) to leave the repo rate unchanged, Hart highlighted while rates have remained unchanged, it will be some time before a rate cut is expected.

“We expect an interest rate cut only in the second quarter of 2009, with inflation peaking at about 13%.

“The softening commodity prices will help to ease inflation, but it has a negative impact on the country's economy as a prosperous mining sector feeds into a number of other sectors.

“Platinum - which is our biggest export value - is down significantly [to $1396 per ounce], while gold is down $200 already [to $823 per ounce].

“Oil and copper is down, but coal has been holding up extremely well,” Hart highlighted.

The expected cut in fuel prices comes on the heels of a 27c decrease in petrol and 16c cut in the price of diesel earlier this month, bringing welcome relief to cash-strapped South Africans feeling the pinch from rising food prices and high interest rates.

Reserve Bank Governor Tito Mboweni, speaking at the bank last week said with regards to the oil price: "If the current oil price and exchange rate levels are maintained, a further sizeable decline [in inflation] can be expected in September."

However, the governor said, it was still too early to tell if the lower international oil price was a temporary phenomenon.

Article published courtesy of BuaNews