Global oil prices rose above $100 (R1 683) per barrel yesterday as the prospect of cuts in output by the Organisation of the Petroleum Exporting Countries and their allies (OPEC+) outweighed global economic growth fears for now.
The Brent crude climbed by 2.6 percent to $103.60 (R1 743) per barrel following a 4.4 percent gain last week, as investors balanced supply side issues against fears that a prolonged global economic slowdown would hurt fuel demand.
Last week, Saudi Arabia flagged possible OPEC+ production cuts to stabilise volatile markets, a move supported by the Democratic Republic of Congo and Libya.
Violent clashes between rival militias in Libya’s capital Tripoli have also stoked fears of further disruptions to oil flows, and interruptions in a key export terminal for crude in Kazakhstan dragged on.
Meanwhile, US-Iran nuclear negotiations are set to drag on into next month, slashing expectations of an imminent return of Iranian oil exports.
This cemented concerns that significant fuel price cuts in September could be smaller than expected due to the recent rand weakness and stronger oil prices.
Mid-month data had given consumers in South Africa hope of a petrol price decrease in the region of R2.50 per litre for September, but the recent oil price volatility has dimmed those hopes.
The Department of Mineral Resources and Energy is set to announce the fuel price adjustments for September following several months of price increases, due to Western countries’ sanctions against Russia.
The global oil price volatility has also impacted the rand’s performance which was still digesting the hawkish US monetary policy.
US Federal Reserve chair Jerome Powell on Friday stressed the need for higher interest rates to bring inflation under control, even at the risk of some economic pain.
The European Central Bank policymakers have voiced the same policy stance.
The rand weakened to R16.99 against the dollar during early trade, close to the lowest since July 21, before pairing gains later in the day to around R16.84/$1, as the dollar held strong after the US Fed indicated it will keep raising interest rates to tame inflation.
Investec chief economist Annabel Bishop said the rand, which reacts negatively to events seen to increase risk aversion in global financial markets, saw slightly less depreciation in response to Powell’s speech.
“The second quarter may see an outcome closer to R16.80/$1 than R16.60/$1, in what has been a weak quarter for the rand, although the second quarter saw more marked volatility, and specifically more weakness as the quarter progressed and global growth forecasts were revised down,” Bishop said.
The JSE FTSE All-Share Index tanked 2 percent to hover below the 68 800 points mark on Monday, the lowest in more than three weeks amid pressure from Johannesburg’s heavy weighing resource stocks.
The darkening outlook on the global economy, exacerbated by hawkish signals from the Federal Reserve during the Jackson Hole symposium last week, lowered demand expectations for mined commodities and pressured bullion through the strength of the dollar.
BUSINESS REPORT