Oil prices take another dive. What does this mean for the South African ZAR?

This year has been one for the books in terms of oil prices as we saw oil reach record highs of $130 a barrel in march. This has had a devasting impact on the rest of the world as inflation has risen to record highs. However, since June we have seen a steady fall in prices, and this week we ana see oil reach the low 90s. So today we look at why these prices are falling and how this will ultimately impact the South African Economy.

Why are Prices Falling？

The US government keeps a national reserve of oil for emergency situations where the country will not be able to access oil due to any unforeseen events. The United States, much like the rest of the world, was greatly impacted by the supply shock of oil from the Ukraine-Russia war and the consequences of covid finance policies which rose oil prices. In order to drop oil prices and slow down inflation, the US government has been pumping out oil from its oil reserves. This strategy worked. Oil prices have been falling significantly worldwide and are continuing to fall. As traders, we can take advantage of this fall in oil prices as this will mean inflation rates may fall and economy currencies will grow stronger.

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How will this Fall in Oil prices affect the South African Economy？

In the past few months, South Africa has been experiencing load shedding which has momentarily negatively affected the rand. However, with the country easing off June, and with energy demands decreasing, the economy can resume its growth. To add the fall in prices oil prices means the cost of business and transport will decrease, and so will the prices of goods and services. Until we hear that the United States has emptied its reserves and has not found a sustainable oil supply, we should see the strength of the Rand increase over the next few weeks. This will mean soon we should look for a fall in the USDZAR soon so we should start looking for large timescale reversal patterns.