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Spike in oil price diminishes chances of fuel price cut

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Chances of a cut in petrol prices next month have likely been dashed by the record rise in world oil prices early yesterday morning.

File image. Photo Courtney Africa/African News Agency(ANA)

CAPE TOWN – Chances of a cut in petrol prices next month have likely been dashed by the record rise in world oil prices early yesterday morning, after Saturday’s strike by ten drones on Saudi Arabia’s second biggest oil refinery knocked out 5 percent of the world’s oil supply.

A stronger rand had seen the Central Energy Fund (CEF) on Friday predict an 11 cent per litre decline in the price of unleaded 95 octane petrol in October, while 93 octane petrol could be cut by 24 cents, while the price of diesel was already expected to have increased by 11 cents per litre.

But the Brent crude oil price – a benchmark in the government’s determination of local fuel prices,  saw a record initial surge of almost 20 percent to above $71 a barrel, within minutes yesterday morning. The price fell slightly, later, but an analyst warned the attack could signal higher oil prices over the longer term, as a risk premium would need to be built in oil from Saudi Arabia, once considered one of the most consistent suppliers of crude oil.

Automobile Associations spokesperson Layton Beard said the drone attack “certainly will have negative impact “ on local fuel prices at the end of the month, but at this stage it was  hard to predict which way the rand dollar exchange rate might go for the rest of the month, and whether oil prices would continue to remain firm.

He said the AA was going to publish  a forecast yesterday, but had postponed it until today (tuesday) to obtain a better picture following the attack.

“An outage in global production of this level has not been seen since Iraq invaded Kuwait in 1990,” Neil Wilson, chief markets analyst for Markets.com said in a statement.

“The implications of these attacks are far-reaching and lasting, going well beyond the immediate disruption to albeit a very large portion of global output. It is a material escalation in the risks to supply. Traders now worry Saudi Arabian oil production can be swiftly and easily knocked out, which goes against everything we’ve come to expect for the last 50 years,” said Wilson.

It indicated ongoing destabilization to global energy markets and would raise very real concerns about the Aramco initial public offering (IPO). 

“It’s going to add a massive risk premium to crude prices, so it will likely materially drive prices higher for a while,” he said.

“This weekend’s drone attacks on Saudi oil facilities mark a major setback to the global geopolitical landscape,” said Taimur Baig, chief economist at DBS Bank. “Other than helping some oil exporting companies, the overall impact of heightened risk is negative for global equities.”