Petrol price drop could have sting in its tail

 Petrol price drop could have sting in its tail

Cape Town - The expected fall in the petrol price in December will certainly be good news for SA, but there is a sting in the tail, economist Dawie Roodt of the Efficient Group told Fin24 on Friday.
"The lower international price of oil is partly reflecting a weak global economy. Unfortunately a weak global economy also pushes other commodity prices down - commodities of which SA is a major exporter," explained Roodt.
Economist Rob Price of ETM Analytics agrees with Roodt and told Fin24 a drop in the petrol price would certainly  positive for consumers, producers and the economy in general, but commentators must weigh the softer petrol price against the underlying drivers of the movement in commodity prices.
"The global oil price has fallen due to weakening global growth and a stronger dollar. The weak global growth outlook is clearly not conducive to an economic recovery in SA, while a strong dollar environment may continue to pressure the rand into 2015," said Price.
"Looking through the short-term positivity of the softer petrol price there are still serious economic headwinds for the economy to endure over the coming quarters."

Setting the stage

Marius Luyt, head of public affairs at the Automobile Association of SA (AA) told Fin24 petroleum prices have dropped by more than 10% over the past 15 days and the exchange rate has weakened only slightly in the same period.
This has set the stage for yet another substantial drop in in fuel prices.
"Based on the current data, petrol is set to drop by between 69c and 72c per litre according to AA predictions, with diesel showing an expected reduction of around 49c per litre and illuminated paraffin a decrease of 43c per litre," he said.
"Statements from oil–producing countries seem to support the view that a slump in oil demand could see the trend sustained over a longer period. All indications are that motorists will have more money in their pockets at month end."
The expected further decline in the petrol price will help the inflation rate to slow and may just give the SA Reserve Bank (Sarb) some room not increase interest rates, according to Mike Schüssler of economists.co.za.
He expects the price of 93 octane could decrease by 76 cents per liter.
"The fact is that petrol will be the cheapest since May last year and in December it will have the first year-on-year decline since November 2009," Schüssler told Fin24 on Friday.
"The average motorist uses about 140 litres of petrol a month. This 199 cent decline by December will, therefore, put nearly R280 per month in the pocket of the average motorist in South Africa and with diesel declining too, farmers and truckers are going to get some serious relief," said Schüssler.
For farmers this is important as planting time is just about now.

Economic impact
"These declines honestly will help the service economy and will bring relief that is equal to a 1% cut in the prime rate for a R400 000 bond outstanding.
The R280 is close to 3% of the disposable income of formal sector employees as measured by BankservAfrica's disposable salary index.
"Having 3% more to spend at Christmas time will undoubtedly make for a better Christmas than last year for many," said Schüssler.
"We believe that GDP growth in the fourth quarter will bounce back strongly and that is mainly due to the lower petrol prices and less strike action in the main productive sectors of the economy."
"Hopefully the prices will stay low and continue to give us a boost in the first quarter. There is normally a seasonal decline of oil prices around January/February so we have a chance of even further cuts."
Other things will of course still increase in price as the weaker rand and higher electricity and water cost structure feed through the economy.
"But the savings on our current account would be close to R8.5bn and perhaps more. So SA will have a softer import bill, although lower gold, coal and platinum prices will make exports also softer," said Schüssler.
"So, the $35 dollar drop of the oil price since June is going to change the inflation forecasts, spending forecasts of households and perhaps give us better growth prospects for next year. Now if we could just fix those electricity cracks."