South Africans should avoid panicking over suggestions that the price of petrol could rise to R40 per liter, as some economists believe the oil supply will stabilize long before the feared $200 oil price forecast is reached. On Monday, the price of oil stood at a very high $130 a barrel, and while oil traders have forecast it to climb to $200 by the end of March, there were also predictions that motorists would be paying a hefty R40 per liter on gasoline. While these predictions make headlines in worst-case speculation…
South Africans should avoid panicking over suggestions that the price of petrol could rise to R40 per liter, as some economists believe the oil supply will stabilize long before the feared $200 oil price forecast is reached.
On Monday, the price of oil stood at a very high $130 a barrel, and while oil traders have forecast it to climb to $200 by the end of March, there were also predictions that motorists would be paying a hefty R40 per liter on gasoline.
While these predictions made headlines this weekend in worst-case speculation, motorists shouldn’t believe the hype just yet, economists said.
Brent crude reached $139 in premarket trading tonight. Per Bloomberg – that’s 18%. On top of last week’s 20%. This is virgin territory.
— Erin Burnett (@ErinBurnett) March 7, 2022
How high can the oil price get?
Economist Dawie Roodt said that while the oil price of $200 is not completely impossible by oil traders, this huge price probably won’t last.
One reason is that while this would be profitable for U.S. frackers who start to take the opportunity, other suppliers could eventually drive the price down, Roodt explains.
“There may be other alternatives that could be used. I know Americans are already talking to Venezuelans, and Venezuela is currently under sanctions. It is not impossible that they even talk to the Iranians, who by the way are illegally selling oil. They can just start selling oil to the main market.”
“While there may be a short hiatus, I also don’t think $130 dollars will stay with us for too long. Soon someone will turn on the taps and the oil price will go down,” says Roodt.
This view was shared by University of Johannesburg economist Peter Baur, who said that although the US was the largest supplier, followed by Russia, there were reserves all over the world, despite the US considering cutting exports from Russia. forbid.
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“I think we just have to avoid the hype that the petrol price will reach that R40. The conflicts with Russia and Ukraine are likely to weaken somewhat. we see that [Russia] don’t advance as much as they expected because wars are very expensive to fight. I think it would lead to a long-lasting kind of conflict…”
“We also have suppliers in other countries. I think [the oil price] starting to get normal. There is obviously the flight because of the conflict, and I think it’s a bit of a panic buy, but I don’t think it will stay there for long.”
Man on the street will be hit hard no matter where prices settle
If the oil price hit $200, it would push inflation in South Africa to between 7-8% or even more, while the US could also raise its rate to between 8-9%, Roodt said.
“As it is now, the petrol price is already, from now on [Monday] tomorrow, go up with another R2.50 or so. We know we will see a jump… For now, the petrol price to R24 or R25 per liter is quite possible.”
What worries us is the “insane” rise in wheat prices. Baur said wheat prices rose to $1250 per bundle Monday morning, compared to the $800 rate on Feb. 21.
“That means the food price has increased by more than a third. That’s a huge increase. Most of it is related to the European and Russian conflict.”
“If you look at these kinds of prices, there will be consequences of increases in food prices and gasoline. It will put pressure on inflation, food prices and a tremendous amount of additional pressure, including transportation costs and production. Both industry and production will of course be strongly influenced by this. They’re going to feel the fuel prices,” says Baur.
Not only that, but this would also force the Reserve Bank to raise interest rates because of higher inflation, Roodt said.
“Some places in the economy are likely to do well, such as mining and agriculture due to high food prices, but other parts of the economy will suffer and the whole economy will suffer. It will lead to an increase in unemployment and all those things. Everyone will be affected, and your salary will never keep up,” he said.
Silverline for the Edge
On the upside, the Rand performed well, as of Monday morning at R20.25 per British pound and R16.69 for the euro.
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Under these circumstances, Roodt said it was expected that the local currency could take a beating.
“It’s behaving well because not only has the price of oil risen, but other commodity prices, such as platinum and gold, have all been supporting the rand’s exchange rate. If the oil price falls, the platinum price will probably also fall and that could lead to a weaker currency,” said Roodt.
The strength of the Rand has been going on since mid-December, but interest rates will attract foreign capital and investors as it will signal to the world that the country can control interest and inflation rates, Baur said.
“We can try to protect the value of the Rand because we can’t afford a further decline in creditworthiness. They are already working on our case,” he said.