Business Insider Edition

The latest rand crash shouldn't cause you much pain at the pump — oil prices have also been tanking

 Aug 08, 2019, 03:26 PM
Industry, Oil, Semi Submersible Oil Rig. (Photo by
(Photo by: Eye Ubiquitous/Universal Images Group via Getty Images)
  • Oil prices fell to seven-month lows this week amid a surprise increase in American oil stockpiles and fears about global growth.
  • US-China trade tensions have overtaken threats of supply disruption in the Persian Gulf as the biggest headwind to oil.
  • This will help to counteract the impact of a slumping rand on fuel prices. 
  • So far this month, the oil price in rand is down 6%.
  • For more stories, go to Business Insider SA.

Trade tensions and fear of a global recession has been a drag on oil prices, even during peak season for demand.

This should offer South African motorists some protection against a large increase in fuel prices next month.

The rand has been tanking this week: it is now down more than 10% since the last month, and was trading at R15.16/$ on Thursday afternoon. This makes oil, which is priced in dollars, so much more expensive. Oil represents some 15% of all South Africa imports. 

Fortunately, oil has been slumping along with the rand. According to the independent market analyst Johann Biermann, the oil price in rand is now down more than 6% since the start of August - despite the rand crash.

Oil reached seven-month lows on Wednesday after American crude stockpiles posted a surprise increase. The loss sent the resource tumbling into bear market territory. Having extra supply dilutes prices, while fears of a global recession added to worries that demand may slow.

Global recession fears were sparked when New Zealand, India, and Thailand all cut rates following the US's own rate cut in July. Global stocks and commodities slid in early trading while bonds and other safe-haven assets such as gold rallied. Even bitcoin rose over $12,000 briefly, breaching the level for a second time in three days.

US domestic crude inventories grew by 2.39 million barrels last week, ending a seven-week long stretch of declines, Bloomberg reported. Gasoline stockpiles also grew by 4.4 million barrels, which surprised the industry as it is currently peak demand season - which usually means there isn't extra gasoline to stockpile.

After falling more than 5% to below $56 a barrel on Wednesday, Brent crude oil rose on Thursday to reach $57. Earlier this year, it was trading above $70.

Oil has plunged this month as trade tensions between the US and China escalated, overshadowing fears that disruptions in the Persian Gulf would be the biggest negative impact. There's increased speculation that China will start avoiding American oil as trade tension escalates, according to Bloomberg.

According to data from the Central Energy Fund, released on Wednesday and based on the oil price and the dollar/rand exchange rate, the petrol price is on track for a 10c a litre hike in the first week of September. However, the expected hike is shrinking at a fast rate. On Tuesday, the CEF was still expecting a 20c hike. 

The petrol price increased by 11c on August 7.

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