Oil pipeline

13 Sep 2023

South Africans under the pump

Listen to our experts, Treasury Economist Tertia Jacobs and Equity Analyst Herbert Kharivhe, as they discuss the surge in fuel prices and the impact of oil market volatility on South Africans. Find out what's driving the increase and the potential implications for our economy.


South Africans were caught off guard last week when they had to pay significantly more at petrol stations, with an increase of R1.71 per litre of petrol and R2.84 more per litre of diesel.

 The root of this rise can be traced back to the volatility in the global crude oil market, which has not only affected local prices but has sent ripples across global stocks, bond markets, and hampered prospects for global growth recovery.

This was the focal point of discussions on the latest episode of the Investec podcast "No Ordinary Wednesday," in conversation with Investec Treasury Economist Tertia Jacobs and Equity Analyst Herbert Kharivhe.

Oil price volatility

Kharivhe explained the dynamics behind the price hike, pointing to OPEC+ production cuts. These cuts were initiated to balance and support the oil prices considering anticipated lower demand. Contributing factors included Saudi Arabia's significant cut in production and Russia's move to decrease its oil output. Another influence at play is the South African currency, the rand, which significantly affects the prices at the pump.

According to Kharivhe, the global oil market's recent behaviour is a culmination of three phases since the Covid pandemic. The first saw a significant rise in oil prices owing to OPEC+ supply discipline, coupled with increased demand post lockdowns. The second was characterised by market turmoil following the Russia-Ukraine conflict, which saw oil prices spike at an unprecedented $138 per barrel before dropping to $72 by June 2023. The third phase reflects current dynamics, with interest rates weighing on global growth and oil demand, especially from the West.

On supply and demand dynamics for petrol and diesel  - while petrol is well supplied globally, diesel presents a different scenario. Its inventories are below seasonal averages, and thus, prices are expected to climb.

Economic implications of oil price volatility

There's growing concern about global growth recovery due to divergent growth patterns across major economies. Jacobs highlighted the divergence in global economic trajectories saying while the U.S. economy has displayed resilience, largely attributed to a robust consumer sector, Europe tells a different story.

Particularly in Germany, high interest rates combined with escalating inflation are diminishing household disposable incomes. Furthermore, the manufacturing sector, closely tied to developments in China, is feeling the strain.

There's a growing unease in Europe, with fears of stagflation – a scenario characterised by soaring inflation coupled with stagnating economic growth. Japan, too, is facing economic hurdles. Despite high savings rates, the nation is witnessing lacklustre growth.

Consumer spending is dwindling, shadowed by low confidence. Additionally, on a global scale, trade dynamics are softening, exacerbated by the prevailing high-interest rates.

More monetary policy tightening?

On the likelihood of further monetary policy tightening Jacobs said the world is still awaiting the fallout from aggressive rate hikes.

With uncertainties looming large, like potential geopolitical risks impacting supply chains and the climate transition necessitating more investment (which could drive interest rates up if borrowing escalates), central banks face a quandary.

The pressing concern is whether these elevated rates might plunge economies into a steeper decline or if they're essential to counteract building inflationary pressures.


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