Oil prices have just suffered their biggest weekly collapse since the start of the Covid pandemic. Brent crude fell about 16% last week, dropping from nearly $118 a barrel the week before to around $98 by Monday. Reuters reported that, on LSEG data, it was also on track to be Brent's biggest weekly fall in dollar terms in records going back to 1988.
The reason came down to growing hopes that the war with Iran could finally be winding down. Oil fell 8% on the Wednesday alone, after the Democrats swept the US midterm elections and investors began betting that Trump would face greater pressure to end the conflict. A sharp sell-off in technology stocks added to the pressure. Then on Sunday, Trump said he was highly unlikely to order fresh attacks on Iran as long as talks to end the conflict progressed.
Why the fall might not last
The problem is that oil prices are falling because investors expect things to improve, not because the war is actually over. There's still no peace agreement between Washington and Tehran, and attacks on oil-carrying ships are still running at close to record pace, according to Britain's maritime security agency. Rystad Energy's Jorge Leon warns that if fighting escalates again, much of last week's decline could quickly reverse. As Matt Stanley of Kpler put it, a fall in the oil price "doesn't mean the underlying problems have disappeared."
We've seen this before. In June, Brent fell to $73.60 a barrel, its lowest level since the day before the Iran war began, only to climb back above $110. But if a deal is reached that lifts the blockade, Vivek Dhar, a commodities analyst at Commonwealth Bank of Australia, believes Brent could fall as low as $70 to $85 a barrel. JPMorgan also says the market is heading for a glut, with global supply now running above what the world consumes.
What it means for December's petrol price
So what does this mean for South African motorists? Our petrol price isn't set from crude oil directly. It tracks the price of refined petrol in US dollars at refining centres in the Mediterranean, the Arab Gulf and Singapore, converted into rand at the exchange rate. Every day, that figure is compared with the price built into what we currently pay, and the average over the whole month sets the next change, which lands on the first Wednesday of the month: 2 December this time.
Early figures suggest good news for petrol. Central Energy Fund data for the first week of November show petrol over-recovering by R2.02 a litre for 93 and R2.32 for 95, which means we're currently paying too much at the pump. Treasury's temporary fuel levy relief shrinks in December, adding 50 cents a litre back to petrol, so the early projection is a cut of about R1.52 for 93 and R1.82 for 95. Diesel, meanwhile, is heading for an increase of about R1.15 to R1.49, because more of its relief falls away. None of those figures include the slate levy or other monthly adjustments yet.
The catch is that December's price uses all of November's daily data, and the early swings count for less as more days are added to the average. With most of November still ahead of us, a lot depends on what happens next with Iran.
