Market analysts say the sharp decline in the oil price presents both challenges and opportunities for South Africa.
Brent crude fell over 30% after Saudi Arabia slashed prices amid rising coronavirus concerns. Independent analyst Liston Meintjes says lower oil price will help to reduce transport costs.
However, he has warned that plunging oil prices are also having a negative impact on some local stocks. The Rand has staged a remarkable comeback after briefly touching R17 to the US Dollar on Sunday night.
This is after Saudi Arabia sent world markets into a tailspin by cutting its oil price to the lowest level in thirty years as it launched a price war with Russia. The oil price has taken down from $50 a barrel to $32 a barrel because of Saudi Arabia.
The gulf state reacted to Russia’s refusal to join oil-producing countries in the OPEC cartel and cut production in order to shore up the oil price in the face of the growing coronavirus spread around the world.
In the video below SABC journalist Arabile Gumede explains the impact of coronavirus on the global markets:
The Rand took a hit along other emerging market currencies, falling from R15.70 to the dollar over the weekend, briefly touching R16.95 to the dollar overnight, a level last seen four years ago.
Mentjies says while lower oil price will help lower the inflation, it could also have a negative impact on some local stocks. This is after oil and chemical company Sasol’s share price fell 45% in early morning trade.
“Sitting in SA and looking at traffic jams and the use we make of oil, I think it’s wonderful for SA. But of course, not good for Sasol…their breakeven numbers are around $47 and suddenly in $30. This morning is down 45% and trading below R100. I remember when it was R500 in the last two years. So you think of Steihohoff – Sasol is causing more damage than Steinhoff.”
Economists say the Reserve Bank will have to implement aggressive rate cuts to support the struggling economy amid the worsening effect of the coronavirus. The overall JSE index plummeted just over 6% in early trade Monday morning in line with global stocks.
ETM Analytics’ Chief Economist George Glynos says the Reserve Bank will have to take its cue from other central banks which have been aggressively cutting rates.
“Fiscal authorities, I don’t expect they’re going to do much if you asking me. If the central banks they will. It’s almost undoubtedly true that they will partly because they have been watching what going on globally and partly also because they are concerned about growth… They will have the room within the inflation basket to reduce rates so it will not surprise me to see not one but several cuts in the coming months from the Reserve Bank.”