Reversal: Petrol, diesel prices now on track for hikes amid Israel-Iran conflict
Last week, before the attacks on Iranian nuclear and military facilities, South African diesel and petrol prices were still heading for cuts in the first week of July, according to data from the Central Energy Fund (CEF).
This changed following the attacks on Friday, which have killed more than 240 people in Iran and 24 in Israel.
While key oil sites have so far not been hit and Iranian oil only makes up 3.5% of global supply, there are concerns that growing tensions in the Middle East – which provides a third of the world's oil - may disrupt production.
Last month, Brent crude oil was trading around an average of $64 a barrel. On Wednesday, it was above $74.
If the US gets involved in the conflict, oil could immediately break above $80 a barrel, said Chris Weston, head of research at Pepperstone Group told Bloomberg.
But George Brown, senior economist at Schroders, said the US and several Middle Eastern nations (including those which have already condemned the attacks, such as the UAE and Saudi Arabia) have no interest in a flare-up of tensions in the region.
'Nor do they wish for disruption to global oil markets. Previously they have intervened to calm situations like this. Israel has stated that the operation will continue for 'as many days' as it takes to remove the Iranian threat. But hostilities could settle if Middle Eastern countries and the US mediate a resolution.'
Brown added that the likelihood of Iran taking any action in the Strait of Hormuz, the often-touted 'disaster scenario' for oil markets, appears remote. A fifth of the world's oil and a fifth of global liquefied natural gas flows through the strait, which is located between Oman and Iran.
'Such action would impact flows for the other Middle East nations, which are aiming to mediate the situation, while inflicting little harm on Israel.'
Apart from the international oil market, local fuel prices are also determined by the rand-dollar exchange rate, as oil is priced in the US currency.
As investors across the world dumped riskier assets amid the Middle East conflict, the rand and other emerging market currencies have come under pressure. Before the attacks, the rand was trading below R17.70/$, but on Wednesday was closing in on R18.05.
The latest data from the CEF shows that petrol (95 unleaded) is on track for an increase of 18c a litre on the first Wednesday of July, while the wholesale diesel price could be hiked by 25c. This is a sharp reversal - diesel was on track for a 25c cut just over than a week ago.
However, there are still almost two weeks left before diesel and petrol prices are fixed.
The Gauteng wholesale diesel price is currently around R18.53 a litre, while on the coast it's R17.70 - the lowest levels since October last year.
Gauteng petrol now retails for R21.35 a litre, while on the coast it's R20.52, the cheapest it's been since November last year.
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