Oil prices have dropped drastically after Saudi Arabia slashed crude prices and leaving energy markets in a flat spin.
Such was the impact of the decrease in crude prices, that markets saw a 30% crash in the oil price overnight after Saudi Arabia launched its price war against Russia.
This is the biggest cut in its prices in 20 years and follows oil prices falling to $50 a barrel by the end of last week; after it became clear that China’s measures, to effectively contain the growth in Covid-19 cases, came at a significant economic cost.
The weaker oil price resulted in the Saudi Arabia-led Organisation of Petroleum Exporting Countries (Opec) to seek an agreement for production cuts with Russia.
However, when this agreement failed, Saudi Arabia announced price cuts during the weekend, in order to undercut Russia, which resulted in oil prices plummeting by up to 30%.
This, in turn, saw the rand nearly crashing through R17/$ overnight and South African shares plummeted on Monday morning, March 9.
But the South African rand was not the only currency affected by the oil price slump. In fact, it triggered massive instability in global markets, hitting emerging market currencies exceptionally hard. The rand managed to recover to a certain degree.
Asian markets ended around 6% lower, while the Australian stock exchange lost 7%. European markets were also sharply lower.
Analysts claim the price collapse is set to make a global impact, from beating revenues in energy-dependent economies to sparking global deflation and impeding oil exploration projects.
While the global market is reeling from Saudi Arabia’s price cuts, it seems the drop in the international oil prices may have a positive impact om Eskom.
Currently, Eskom is struggling to generate enough power through its coal-fired power stations to meet demand. During its last financial year, Eskom burned diesel to the value of R6.5 billion at its open-cycle gas turbines to avert or limit power cuts.
As the power utility expects supply constraints for at least 18 months, a prolonged fuel price slump will help Eskom contain its primary energy costs.
With the decrease in international oil prices having a possible positive impact on Eskom, can motorists also expect to see a price decrease at the petrol pumps in April?
According to the Automobile Association (AA), it is still too early to assess the impact of the oil price collapse will have for South African motorists.
The AA’s Layton Beard says the impact of the oil decreases is something that we’ll need to have a look at over a couple of days; while taking the strength of the rand in consideration.
However, the Central Energy Fund (CEF) has released its first estimate of how fuel prices could fall at the start of April.
According to Monday’s oil price (which tanked by 20%) and rand/dollar rate, the CEF calculates that the price of 95 unleaded petrol should decrease around 78c less, while the price of 93 should be 69c lower, while diesel prices should drop by between 90c and 91c.
As Saudi Arabia continues its price war with Russia, it seems that South Africans will have to wait in anticipation to see exactly how it will affect our country.
