Weekly economic wrap: Bad news for oil prices, rand soldiers on

The Citizen

20-06-2025

While the week was uneventful on the local economic front, the same cannot be said for the international picture for oil prices.
As expected, the week brought bad news for oil, but thankfully not such bad news for the rand as Israel and Iran entered a full-blown war after Israel struck Iran's nuclear facilities last week. Closer to home, inflation remained the same in May, while retail sales showed a solid performance in April.
Lisette IJssel de Schepper, chief economist at the Bureau for Economic Research (BER), points out that so far none of the global superpowers has directly become involved in the Israel-Iran war, with US president Donald Trump saying that he will decide in the next two weeks what to do, although he already approved attack plans.
'In commodity markets, there is good news with a higher platinum price and bad news with a higher oil price for South Africa's trade dynamics. The platinum price jumped to a more than 10-year high this week, supported by demand from China, sustained investor interest and concerns about a deficit in the market, with demand outstripping supply.
'On a negative note, the oil price surged higher this week and is currently almost 20% above the price at the start of the month. Iran directly supplies about 3 million barrels of oil to the market per day, and this could technically easily be made up by a country like Saudi Arabia, which is still voluntarily cutting back production.
'However, the real concern is that freight in the Strait of Hormuz, which channels about 15% of the world's oil and 20% of liquid natural gas, is disrupted. Oil continues to flow, but prices to charter large oil tankers sailing through the strait have already more than doubled from last week.'
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Oil prices surge as Israel-Iran war heats up
Bianca Botes, director at Citadel Global, agrees that the recent outbreak of war between Israel and Iran has significantly unsettled global energy markets, with profound implications for oil prices, the global economy, and Middle Eastern power dynamics.
'This escalation triggered immediate volatility in oil markets, with Brent Crude and West Texas Intermediate (WTI) prices surging by over 4% from the start of the conflict, seeing Brent reaching around $76/barrel and WTI surpassing $75/barrel. Since the start of the conflict, oil futures have risen approximately 10%, reflecting market anxiety over potential supply disruptions.
'Iran is OPECʼs third-largest oil producer, extracting about three million barrels per day. Despite sanctions limiting its exports, Iran remains a significant player, especially in supplying China and India. The conflict threatens Iranian oil production and shipping routes, notably the Strait of Hormuz.'
Botes points out that analysts warn that oil prices could spike to $100 per barrel or even $120 per barrel if supply through the Strait of Hormuz is disrupted. 'Such a price shock would reverberate through global markets, impacting inflation, consumer costs, and economic growth worldwide.
'Brent Crude Oil futures fell below $73/barrel, but are still set for a third consecutive weekly gain. Fears of supply disruptions due to the ongoing conflict supported prices, even as Iran continues to export crude at high levels. A sharp drop in US crude inventories earlier in the week also helped keep oil prices elevated.'
She says gold prices dropped below $3 360/ounce, nearing a one-week low and heading for their first weekly decline in three weeks. 'Investors have been selling gold to cover losses in other markets, and the prospect of no or gradual interest rate cuts limited gold's appeal.'
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The rand soldiers on
De Schepper says the rand exchange rate held up well during the week, but depreciated slightly against a stronger dollar on Thursday and closed the week weaker against the dollar, euro, and pound.
Botes notes that the rand is bouncing between R17.90/$ and R18.10/$, showing a slight weakening trend since its recent rally. 'The rand's performance was largely influenced by global risk sentiment and fluctuations in commodity prices.
'Compared to other emerging market currencies, the rand has held up well in recent sessions, despite ongoing uncertainty in global markets and the impact of international developments on investor appetite for risk assets.'
Busisiwe Nkonki and Isaac Matshego, economists at the Nedbank Group Economic Unit, point out that the rand broke through R18/$, dropping to its lowest level since the second week of May as global risk aversion spiked and investors dumped emerging market assets.
'The local currency touched R18.15/$ on Thursday evening before recovering to around R18.01 this morning, down 1.2% from R17.80 on Monday.' The rand was trading at R17.99/$ this afternoon.
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Inflation remains at 2.8% in May
According to the latest release from Statistics SA, inflation stayed below 3% in May at 2.8%, the same as in April. The largest contributions came from food and non-alcoholic beverages, which increased by 4.8%, primarily driven by higher meat prices.
Katrien Smuts, economist at the BER, says while the recent foot and mouth disease outbreak put pressure on red meat prices, it was not the sole driver. 'Prices were already trending upward for several months and some analysts suggest the impact may be short-lived. Outbreaks often lead to export bans, which can increase local supply and place downward pressure on domestic prices.
'The ban on poultry imports from Brazil, due to an avian influenza outbreak, is expected to be temporary and limited to affected areas. While Brazil is a key poultry supplier to SA, the impact is also only expected to be short-lived.'
Nkonki and Matshego say inflation remaining steady at 2.8% in May was in line with market expectations but higher than their 2.3% forecast. 'The primary contributor was food prices, although increases in housing, utilities and alcoholic beverages also played significant roles. Despite ongoing downward pressure from fuel prices, persistent price increases in other sectors shaped the overall inflation landscape.'
Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole and Koketso Mano, economists at FNB, note that fuel prices dropped sharply, but warn that risks from a weaker rand and rising global oil prices could reverse this trend.
'Despite current disinflation, geopolitical tensions and trade uncertainty ahead of the July Monetary Policy Committee (MPC) meeting suggest that the South African Reserve Bank (Sarb) will likely maintain a cautious stance and hold rates.'
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Increase in retail sales in April, but motor trade decreases
Statistics SA's latest retail trade sales data showed another solid performance in April, with sales increasing by 0.9% compared to March and 5.1% compared to a year ago. The main driver of growth was the general dealers' category, which increased by 5.3%.
Despite another steep annual decline of 6.5%, wholesale trade sales perked up by 0.9% compared to March. However, motor trade sales decreased by 1% compared to March and by 0.9% compared to a year ago.
Smuts says while the muted inflation print provides some welcome relief and April retail sales showed the consumer has some strength, the question is how long this can be sustained. 'Real incomes are squeezed amid unchanged personal income tax brackets, a pending electricity tariff hike in July and an increase in the fuel levy.'
Nkonki and Matshego expect the upward momentum in retail sales to continue, supported by rising real incomes, subdued inflation, continued withdrawals of contractual savings and lower debt servicing costs compared to a year ago.
Matikinca-Ngwenya, Mkhwanazi, Sithole and Mano point out that despite April's strong performance, retail activity over the past three months remains 0.5% lower compared to the preceding three-month period, suggesting that household spending may be losing momentum.
'The spike in annual sales likely reflects holiday-related spending and two-pot pension withdrawals coinciding with the new tax season.'