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By DIneo Faku 
5h ago
JOHANNESBURG – South Africa will benefit from volatility in the global price of oil, and fuel will drop around R3 per liter in May after the R1 cut this month.
Vestact Asset Management portfolio manager Michael Treherne said the drop in Brent crude prices had challenged the country’s weak currency.
Treherne said South Africans could be prepared for more fuel price reductions in the future
He said this would leave the country’s cash-strapped consumers with more money to spend.
“This means that people have more money to spend in other parts of the economy, which is very necessary at the moment,” Treherne said. “In addition to that, low oil prices mean that local inflation should also fall, giving the Reserve Bank of South Africa more room to lower the interest rate, which in turn will be of great help to our economy.”
The US West Texas Intermediate (WTI) benchmark fell to – $ 40.32 a barrel on Monday from more than $ 60 a barrel earlier in the year, forcing producers to offload stocks instead of paying exorbitant prices for the storage.
Oil prices collapsed mainly due to disagreements within the Organization of the Petroleum Exporting Countries (OPEC), the continuing confrontation between Russia and Saudi Arabia, as well as fears about the impact of the coronavirus on the global economy.
This week, OPEC, Russia and a group of other oil-producing countries agreed to cut production by a record 10 million barrels from May.
However, Treherne said the move was unlikely to slow the tide as the market would likely be left with too much supply.
In the United States, many shale oil producers have canceled drilling plans, while others have been forced to close active wells.
“What we don’t know yet is how many fracking operations in the United States will be closed,” Treherne said. “The forecast by the International Energy Agency last week was that the world would be oversupplied by 10% for the rest of the year. Even if demand and supply are level, the world still needs to make its way through all the stored oil. Oil prices are more than likely to remain under pressure for the rest of the year. At these low prices, many producers are under pressure. However, over time, the price of oil should go higher. ”
The WTI price rebounded to $ 16 a barrel on Thursday after United States President Donald Trump threatened to destroy Iranian ships harassing American ships in the Persian Gulf.
Izak Odendaal, an investment analyst at Old Mutual Wealth, said the fundamental oversupply of oil remained.
“We can expect prices to remain low and volatile in the coming weeks until there is a better picture of how quickly the world economy can pull out of the blockade,” Odendaal said, adding that the best cure for low prices was the low prices. In other words, at very low prices, many oil wells are not profitable and then close, eliminating excess supply from the market.
How quickly this happens will depend on the extent to which producers have covered themselves. ”
BUSINESS REPORT
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