Petrol price crude oil

Barrels of crude oil / stockphoto

Oil prices hit four year high, motorists begin to panic

A soaring oil price has emerging markets trembling.

Petrol price crude oil

Barrels of crude oil / stockphoto

The price of crude oil has jumped beyond $80 a barrel, causing concern amongst embattled emerging markets.

South Africa is one of these emerging markets which has already been hit by global financial uncertainties, resulting in a weakening rand and a slump into technical economic recession.

Weak rand and high oil prices spell disaster

And while the rand has managed to claw back a few percent in the second half of September, the outlook for October, in terms of petrol prices, still looks mighty grim.

Unfortunately, South Africa is, to a large extent, at the mercy of global instability – especially when it comes to crude oil as a commodity. While Middle Eastern nations have the power to produce, and control, their own supply of oil – South Africa relies on a strong rand to soften the blow of rising oil prices.

In previous years, South Africa has managed to keep a leash on petrol prices by counterbalancing international oil prices. In essence, whenever the oil price has broken the ceiling, South Africa’s currency has been strong enough to ward off exorbitant fuel hikes.

What’s worrying is that in recent month’s South Africa’s currency has weakened, and the economy is in its first recession since 2009, while oil prices soar to levels last recorded in November 2014.

Even Energy Minister Jeff Radebe has labelled recent developments surrounding oil prices a cause for ‘great concern’. Petrol prices are expected to exceed R17 a litre in October.

Donald Trump’s squabble with Iran causes more uncertainty

According to Fin24, the problems facing global oil consumers stem from Saudi Arabia, and the nation’s decision not to increase output. Despite calls from US President Donald Trump to increase output, an announcement by the Organisation of the Petroleum Exporting Countries (OPEC) described the market as “an overall healthy balance between supply and demand”.

David Madden, of CMC Markets, explained that a squabble between Trump, OPEC and Iran has led to a steadily increasing cost of Brent oil, saying:

“Saudi Arabia and Russia confirmed that they are not raising output – and this is bad news for President Trump as he wants a lower oil price that is good for business.

Last week, Mr Trump verbally attacked OPEC and some traders thought we might see an increase in supply from the United States’ Middle Eastern allies. The Algiers [OPEC] meeting did not bring about an increase in output – and that is fuelling the rally.

Fears that supply will be hit when the US sanctions on Iran kick in come November are pushing up oil prices.”