Oil price jump has not derailed expectations of fuel price cut

The biggest one-day rise in the oil price in over a month has not derailed expectations of a hefty cut in the petrol price next month.

Brent crude rose as a much as 3% on Monday, but oil technically remains in a bear market and analysts expect plans by producers to cut output will not be in place by Christmas.

The oil price has eased about 15% in dollar terms since the beginning of October. A stabilising rand has prompted some analysts to predict both falling fuel prices, and possibly an interest rate cut in coming months.

The Central Energy Fund said on Monday the over recovery per litre of petrol so far in November due to movement in the oil price and the rand was R1.50, but these were based on Friday’s figures, said the Automobile Association’s Layton Beard.

It was only halfway through November, but it still looked as if SA motorists could see a significant petrol price decrease in December, said Beard. 

The price of unleaded 93 petrol has risen about 19% so far in 2018, putting pressure on consumers. 

Brent crude surged on Monday after Saudi Arabia said it would cut exports by 500,000 barrels a day next month — equating to 0.5% of global production.

The jump in the oil price however comes after global oil prices came under strain due to signs of rapidly rising US production, while the decision by the US to temporarily exempt several countries from Iranian sanctions has also quelled fears of supply constraints.

Technically, oil was still in a bear market — defined as a 20% fall from its recent peak — said Oanda analyst Stephen Innes.

This was a supply glut, and it was unlikely Asia’s “unquenchable demand” for oil was about to dry up any time soon, said Innes.

Oil cartel Opec and its allies have also proved in the past that they were capable of stabilising prices through production cuts, so the question then turned to the timing of this.

“None the less, the consumer will get an early Christmas gift at the pumps as supply glut is expected to extend into year end,” said Innes.

As the JSE closed on Monday oil had pared its gains and was about 1.8% higher at $70.91, having still fallen 5.04% so far in November. The rand has risen about 2.56% over the same period, trading at about R14.39 on Monday.

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