FUEL prices in South Africa will certainly remain at elevated levels above R20 per litre for petrol in March, as the global price of oil hit record highs again yesterday with geopolitical tension escalating between Russia and Ukraine.
Russian President Vladimir Putin on Monday night announced on live television the recognition of breakaway territories in south-eastern Ukraine as independent states.
This perceived Russian aggression drove Brent crude oil prices up by more than 5 percent above $99 (R1 497.21) per barrel, and closer to the feared $100 per barrel earlier yesterday.
This was the highest level that oil prices have risen to since September, 2014, on worries about possible supply disruptions amid escalating tensions in Europe.
The latest data from the Central Energy Fund (CEF) points to big fuel price hikes next month − well above R1 a litre for all grades − that will push petrol prices to a record high of more than R21 a litre.
Anchor Capital’s investment analyst Seleho Tsatsi admitted there seemed to be upwards pressure on oil prices in the short term. Tsatsi said the Russia/ Ukraine conflict was likely to lead to sanctions on Russian energy and Russia is a large exporter of energy, including oil.
“Higher oil prices mean higher energy prices and a higher cost of living for all of us as consumers,” Tsatsi said. “The South African consumer is already feeling it every time they go to the petrol station. Lower disposable income is the outcome in the short term for the SA consumer.”
Putin recognised the two self-proclaimed separatist republics in Ukraine, and ordered troops to go into the regions of Donetsk and Luhansk on a “peacekeeping mission”.
As a result, Western leaders have threatened a strong response against Russia. The US and the EU are set to announce more stringent sanctions and export controls against Russia, as well as cancelling trade with the two regions of Ukraine. Russia’s decision to forego a diplomatic solution to the Ukraine conflict triggered risk aversion in global markets.
Bianca Botes, a director for financial advisory firm Citadel Global, said investors had been spooked by these latest developments. “The Brent crude oil price soaring to a seven-year high is adding fuel to the fire of an already tense market environment, as growth and inflation fears are accelerated by the rise in the price of this liquid gold,” Botes said.
Germany’s Chancellor Olaf Scholz, who had a meeting with Putin last week, yesterday suspended the approval process for the Russian-German Nord
Stream 2 natural gas pipeline. “The certification has been stopped, which means Nord Stream 2 cannot go online,” Scholz said. At least 55 percent of Germany’s natural gas demand is met by Russia’s Gazprom, and gas storage facilities in the country are currently only 31 percent full. Last month, UBS Global Wealth Management outlined a base case scenario in which diplomatic and political efforts lead to a dialling down of tensions.
UBS’s risk case scenario would see a military escalation of the conflict and the imposition of new sanctions against Russia. UBS chief investment officer Mark Haefele yesterday said the conflict was now situated in the grey area between the two scenarios.
“We remain of the view that the severe risk case we described earlier − including fighting and a prolonged interruption of Russian energy exports − still represents a tail risk at this stage,” Haefele said.
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