The oil price surged to a three-year high yesterday, breaching the $77.50mark (R1 104) per barrel as another price war erupted among oil-producing countries.
The Organisation of the Petroleum Exporting Countries (Opec) meeting to get a unanimous deal on output increase for 2021 and 2022 was postponed indefinitely once again on Monday.
The United Arab Emirates (UAE) blocked a deal to ramp up output by two of the world’s largest oil producers, Saudi Arabia and Russia.
The deal would see an output increase of 2 million barrels per day in the second half of the year, but the UAE said the extension was conditional on revising its baseline productions.
However, Iraq backed the current agreement with Opec countries, saying it did not want to see oil prices soaring above current levels to achieve stability.
There has been no new date being set for the meeting after failing twice to reach a deal last week, but Iraq was hoping a new date would be set within the next 10 days.
Last year, oil prices fell more than 60 percent after Russia and Saudi Arabia dramatically increased production amid low demand arising from the Covid-19 pandemic.
FXTM’s senior research analyst Lukman Otunuga said Opec could keep output unchanged in August and the rest of 2021 if things were left in limbo with no deal reached.
Otunuga said such a scenario could see higher oil prices.
“However, if the infighting means no Opec+ deal by April 2022, this could result in a “free-for-all” as major oil-producing nations pump at will,” Otunuga said.
“If this is anything like what we witnessed in the 2020 price war with Saudi Arabia and Russia, oil prices would experience a steep sell-off.”
The movement in fuel prices in South Africa is typically affected by two main factors – international petroleum costs, and the movement in the rand/dollar exchange rate.
Today, the country’s motorists will pay a bit more as the fuel price rises following an increase in international petroleum costs.
The latest fuel price adjustments show a hike across the board, with octane 95 petrol rising by 26 cents a litre, diesel by 42c a litre and illuminating paraffin by 36c a litre.
The dollar has stumbled under pressure, weakening against every single G-10 currency.
TreasuryONE’s currency strategist Andre Cilliers said the rand was expected to remain in a fairly tight range until after the release of the US Federal Open Markets Committee minutes today.
Cilliers said the current gains on the rand was due to an upward move in commodity prices with gold breaking above the $1 800 per ounce and other commodity prices also slightly on an upward trend.
“(This has left) the US dollar weakening against the other major currencies like the euro with the US dollar index thus a bit weaker,” Cilliers said.
“The influence of the level 4 regulations thus has a minimal impact on the value of the rand exchange rate at the moment.”