Expect higher diesel prices as Middle East tensions rise

2018-04-19 11:58
This picture - released by the French military on April 14th - shows French Rafale fighter jets preparing to take off on April 13th 2018 from the Saint-Dizier military base in eastern France. The US, UK and France launched strikes on targets associated with the chemical weapons capabilities in Syria following a suspected chemical weapons attack in Douma. The tensions in the Middle East are making the outlook for oil prices negative.

Following the massive hike in the price of diesel and petrol last month, there’s more bad news ahead on the fuel price front with the Automobile Association (AA) warning truckers and motorists that they are set to be hit hard at the end of April due to increases in the landed prices of fuels.

Commenting on unaudited mid-month data released by the Central Energy Fund, the AA says petroleum prices were largely flat in the first week of April but spiked sharply as tensions escalated in Syria. “The Middle East lies near many of the world’s key oil producers and petroleum prices have historically been sensitive to instability in the region.”

The Rand also weakened slightly against the US dollar in the first half of April but the AA points out that the spike in international petroleum prices accounts for nearly the entire rise in fuel prices predicted by the mid-month data.

“On the current data, diesel is set for a rise of 48 cents a litre and petrol of 41 cents a litre. In both cases, the movement in the exchange rate accounts for just four cents of the rise,” notes the AA.

The predicted increase in May comes on the back of a 72 cents increase in April meaning, if it materialises, that fuel prices will have increased by more than one Rand in the space of two months. The AA says prolonged instability in the Middle East could drive international petroleum prices higher.

“Several foreign powers have now taken a position in the Syrian civil war. If tensions escalate – or the war itself drags out even further – the outlook for oil prices will become more negative. South Africans should be aware that their fuel budgets might come under renewed strain in the short to medium term,” the Association concludes.

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