What the pump price isn’t telling you 

The United States (US) war with Iran has spiked oil prices and injected a lot of uncertainty in the markets. One of the biggest impacts for consumers is the increased cost of fuel and the knock-on effect on the broader economy. However, to understand what is happening when it comes to the increased cost of fuel, we need to understand what drives pricing along the fuel value chain. 

The number that appears on a fuel price board is the end of a long sequence of factors. It is not a live reading of the market. Understanding the difference between what oil costs on paper and what it costs to actually put a barrel on a ship, route it to South Africa (SA) and get it into a refinery is the difference between reading a headline and understanding the process. Right now, the market price of oil and petrol price are further apart than they have been in some time. 

The Brent crude benchmark 

The start of the petrol value chain is Brent crude, which is a worldwide benchmark price for purchasing oil. It is the price the market agrees on for a standardised, forward-dated contract based on North Sea oil. The price is denominated in barrels which is a measure of 159 litres (42 US gallons or 35 imperial gallons) of oil. What physical cargoes actually trade at – the real volumes changing hands between producers, traders and refiners – is a different price to the Brent price. In stable conditions, the gap between benchmark and physical price is small and predictable. When supply routes are disrupted, however, the physical market moves faster and further away from the benchmark because buyers who need actual oil now are bidding against each other for cargoes that tangibly exist and can be moved. The benchmark does catch up, but with a lag. This means that when you watch the Brent price on a screen during a supply disruption, you are watching yesterday’s agreed price. In actual fact, the traders selling physical barrels of crude are already paying more – and so is SA. 

SA’s dependence on Gulf fuel 

SA does not produce meaningful quantities of crude oil domestically and domestic refining capacity has contracted materially over the past several years. As such, the country has become progressively more dependent on imported refined products rather than crude processed locally. Almost 80% of those imports come through Durban, where Island View Terminal serves as the primary unloading point for the country’s fuel supply. Before the Hormuz disruption, the bulk of SA’s diesel, petrol and jet fuel arrived from Gulf producers – Oman, Saudi Arabia and the United Arab Emirates being the primary sources. That supply line is now under pressure and the market has had to adapt in real time. 

SA’s new oil supplier 

The adaptation is visible in the shipping data. SA has been receiving significantly more fuel from the US in recent weeks, with American cargoes partially filling the gap left by constrained Gulf flows. This is not a like-for-like pricing substitution. US Gulf Coast refined products must travel considerably further to reach Durban than a cargo loading out of the Arabian Gulf under normal conditions, and distance translates directly into freight cost. That freight cost sits on top of a flat price that is itself elevated. The landed cost of a barrel of fuel in SA today reflects both the market price of the commodity and the substantially higher cost of getting it here from a different origin – a compounding effect that the regulated petrol price formula does not always capture cleanly or quickly. SA recorded its largest petrol price increase in close to two decades at the start of April and the repricing of freight and supply origin has not yet fully worked through the system. 

Petrol vs diesel 

This is where diesel becomes a separate and more immediate conversation. Petrol pricing in SA is regulated through the Basic Fuel Price mechanism – a government formula that controls what motorists pay at the pump. There is no variation between retailers. Diesel operates differently. It has a maximum retail price, but large commercial buyers, including transport companies, mining operations and agricultural businesses, transact directly with suppliers at negotiated rates. This means diesel pricing in SA is more exposed to physical market movements than petrol is. When cargo costs rise, when freight premiums expand, when alternative supply origins are more expensive to source and ship, diesel buyers feel that signal before it shows up on a forecourt board – meaning freight, food distribution and industrial input costs are already feeling the pinch, while the pump price still has to catch up. 

Where the damage is done 

What makes supply disruptions even more damaging is the downstream trading behaviour. When buyers believe supply is about to tighten, they order ahead of immediate need, with wholesalers building inventories and logistics operators filling storage. While each of these decisions is rational in isolation, collectively, they amplify the apparent tightness in the market and drive prices harder than the physical reality justifies. On the back of the war, the major oil trading houses are all guilty on this point. Even if the conflict concluded and a ceasefire took hold tomorrow; the rewiring of global oil trade flows would take months to normalise. Unfortunately, supply chains do not snap back and the market has been warned not to expect a quick return to pre-war patterns and that Hormuz flows may, in fact, not recover to their previous volumes regardless of how the political situation resolves. 

Delayed pain for the consumer 

The last part of the picture is the one that gets the least attention. Even if alternative supply were fully secured today, the effect on SA pumps would still take weeks to arrive. A tanker from the US Gulf Coast to Durban covers a substantially longer route than one from the Arabian Gulf – transit time alone runs to several weeks. Once a cargo arrives, it must be offloaded, processed through the terminal infrastructure and distributed through an inland logistics network before it reaches a vehicle. The supply chain between a barrel leaving a loading port and that same barrel entering a tank in Johannesburg is measured in weeks, not days. The market prices in what it expects future supply to look like, but consumers experience what supply looked like in the past. So, even if the oil price goes down, consumer pricing will linger higher – long after the disruption is over. 

The week’s markets are back on edge 

Key themes: 

• US bonds eye US Federal Reserve (Fed) rate announcement next week 
• Iran tension palpable in equity markets 
• Aggressive moves by both Iran and the US in the Strait of Hormuz see oil soar 
• Dollar set for first weekly gain in three weeks 

Bonds 

The US 10-year Treasury yield is anchored near 4.3%, unmoved since mid-month. With tensions in Iran having escalated again, as US President Donald Trump ordered the US Navy to target mine-laying vessels in Hormuz, the US blockade of Iranian ports holds and oil remaining well above pre-conflict levels, the Fed is expected to hold rates steady next week. Markets are only pricing in a 26% chance of a December cut, down sharply from two cuts expected before the war. 

German bund yields are at 3.05%, their highest level since 2011, as Germany’s private sector contracted at its steepest pace since late 2024, the Economics Ministry halved Germany’s 2026 growth forecast and Brent is well-above $100/barrel, all leaving the European Central Bank (ECB) with no easy options. In addition, Tehran has ruled out immediate talks and the truce extension has provided little relief. 

United Kingdom (UK) gilts are above 4.95% for the first time since 2008. The UK Purchasing Managers’ Index (PMI) showed an April bounce but much of it reflects precautionary stockpiling. The March budget deficit at £12.6 billion came in above the £10.4 billion forecast, adding complexity for the Bank of England’s Monetary Policy Committee (MPC) ahead of its 30 April meeting. 

SA’s 10‑year bond yield edged up to around 8.50% after this week’s March Consumer Price Index (CPI) print of 3.1% sharpened the policy debate. Fuel cost pass-through is expected to push inflation higher from April. South African Reserve Bank (SARB) Governor Lesetja Kganyago cautioned this week that rates are likely to remain elevated for longer. 

Equities 

Nasdaq futures are up 0.5% this morning on Intel’s 19% after-hours surge following a strong first quarter financial result, amplified by Tesla CEO, Elon Musk, signalling Tesla could direct around $3 billion towards Intel’s chip fabrication. Thursday’s session was weaker, with the Dow, S&P 500 and Nasdaq falling 0.36%, 0.41% and 0.89% respectively, as stalled Iran talks and broad sector weakness drove the selling. 

The UK’s FTSE 100 fell for a fourth straight session on Thursday, with Hormuz tensions and the war’s stalled diplomacy efforts keeping sentiment fragile. Grocery retailer Sainsbury’s dropped more than 4% on conflict-related margin warnings, while information and analytics company RELX shed over 2% despite holding its outlook. Ex-dividend moves in miner, Fresnillo, defence company, BAE Systems and financial services group, Legal & General, added drag. The London Stock Exchange, however, gained around 1% on strong first quarter trading volumes. 

Europe’s STOXX 50 slipped 0.3% to 5,887, its fourth consecutive lower close, while the STOXX 600 edged up to 615. Eurozone PMI confirmed private sector contraction under higher energy costs. The financial services industry felt the pinch, with Santander, Deutsche Bank and BBVA each losing over 2%, software services company, SAP, dropped more than 6% pre-earnings, while cosmetics company, L’Oréal, surged 9% on its best quarterly growth in two years. 

SA’s JSE FTSE All Share Index is at 118,066, down 0.29% and the JSE Top 40 is at 110,233, down 0.32%, consolidating after sharp declines. The softness comes as a result of profit-taking after a strong April run, rather than any meaningful shift in sentiment. 

Commodities 

Brent is above $106/barrel this morning, tracking a weekly gain of close to 18%. President Trump’s orders for the US Navy to target mine-laying vessels and the boarding of an Iranian supertanker in the Indian Ocean have made a near-term resolution look remote. The ceasefire extension is holding in name only and sharply reduced Middle Eastern shipments are tightening global supply in a way that increasingly looks structural. 

Gold is below $4,700 and on track for a 3% weekly loss, with its reversal being driven by the same forces pushing crude higher. Elevated energy prices have revived US inflation expectations and rate hike bets, rotating safe-haven demand back into the dollar and away from bullion. With no meaningful talks scheduled and both sides maintaining Hormuz blockades, the near-term picture remains challenging for the metal. 

Currencies 

The US Dollar Index is around 98.8, on course for its first weekly gain in three weeks. Stalled diplomacy, President Trump’s hardening posture on Hormuz and energy-driven inflation expectations have all supported safe-haven demand. Markets are pricing in a hold in interest rates by the Fed next week and likely beyond. Fed-Chair-nominee, Kevin Warsh’s pledge to uphold policy independence is the week’s other notable dollar-relevant headline. 

The euro has slipped below $1.17/€ for the first time in two weeks. Eurozone PMI confirmed the fastest private sector contraction since late 2024, Germany has slashed its growth outlook and Brent crude sitting well-above $100/barrel has left the ECB’s policy calculus deeply uncomfortable. With Tehran refusing to engage, there is no near-term catalyst for energy relief. 

Sterling is holding around $1.35/£, its weakest level since 10 April. UK PMI beat expectations, but the detail was less encouraging, with much of the activity driven by inventory building ahead of anticipated supply disruptions. The pound remains sensitive to any shift in the Iran narrative heading into the weekend. 

The rand jumped to around R16.66/$ early this morning – its weakest level in two weeks – as a firmer dollar, rising oil and an increasingly hawkish SARB tone converged. South Africa’s March CPI print, at 3.1%, is manageable for now, but the April and May readings are where the real test lies. Governor Kganyago’s “elevated for longer” narrative has signalled a shift in the rate conversation, with a 25-basis point hike on the cards at the 28 May MPC meeting. 

*Please note that all information is at the time of writing.