Volatile Petrol Prices and US Interest Rates will cause turbulence in the world economy.
South Africans need to brace for another significant price jump at the petrol pumps in July as we’re seeing a weakening of the Rand against the US Dollar and further strain on global oil prices.
JPMorgan Chase, the largest bank in the United States, predicts a further jump to $185 a barrel by the end of 2022 as nations shun Russian oil. About 66% of oil produced by Russia can currently not find a buyer. (The current Brent Crude price as at 15 June is $120 per barrel).
Dr. Francois Stofberg, a Senior Economist at Efficient Group, says this would result in a direct increase of R5-R7 per litre of oil.
“You’ll see R4 to R5 increases easily to the petrol price if we reach $185 a barrel, and of course, that would hurt tremendously if you are already R21/R22 where you be paying R25 to R27 that is a 25% additional increase in the prices you’re paying,” he continues.
The knock-on effect is significant. We’ll certainly see a shift in food and consumer goods prices, even though fuel costs are actually a small percentage of the total cost of food and consumer goods.
So, what can the Investor do?
“We’ve got to look at multiple inputs,” says Miguel Rodriguez, Market Analyst at CAPEX.com. “Of course, a strangling of Russian oil out of the market puts pressure on supply, and results in higher oil prices. Another thing to look for, though, is the Federal Open Market Committee (FOMC) meeting scheduled this week to discuss the monetary policy of the US Federal Reserve for the rest of 2022. Market Analysts are predicting the Central Bank to raise interest rates by up to 75 basis points this week as it struggles to reign in the inflation in the United States.”
“As the FOMC influences the availability of money and credit, any rate hike announcement could throw the economy in the air. Consumers and businesses would suffer, dragging the US Dollar down and sending shockwaves through the already troubled financial markets. Another rate hike of this calibre could shake the US Dollar and related currency pairs, stock indices, and commodities tied to the USD,” he says.
This could present an opportunity for savvy Forex Investors. Traders cannot make a profit if prices never change. As volatility increases, the potential to make more money increases. The trade-off, of course, is that greater volatility also increases risk.
“You need to keep your head on your shoulders,” says Rodriguez. “Now is not the time to make rash decisions. Keep to your trading strategy. Leverage carefully. And don’t get greedy.”
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