South Africa’s shift to electric vehicles has been relatively slow, but the latest fuel shock may persuade more motorists to run the numbers on something like a BYD Dolphin. Petrol and diesel prices are on track to rise by about R3 per litre in October, taking inland petrol to about R30 per litre and wholesale diesel to R33 — both record highs. Petrol would then be about 48% more expensive than in March and diesel almost 80% higher.
Sasol shareholders, naturally, have less reason to complain. The fourth quarter of the group’s June 2026 financial year showed just how dramatically higher oil prices and refining margins can feed through to earnings. Sasol generated an estimated R25bn of ebitda in those three months alone, compared with about R35.7bn in the entire first nine months of the year. Reflecting on the second-half performance, CFO Walt Bruns said: “We hadn’t [achieved ebitda of R40bn] since the second half of financial 2022, when the Russian invasion of Ukraine took place.”
That is a useful reminder that, for all Sasol’s internal progress, oil prices and product cracks remain the elephant in the refinery. Sasol can run its plants better, improve mining performance and cut costs, but when Brent and diesel margins surge, commodity prices still swamp almost everything else.
Better outlook
The good news is that today’s Sasol is far better positioned to capture that upside. Secunda production rose 8% to 7.26Mt in financial 2026, its highest level in five years, helped by improved gasifier availability and more stable operations. Guidance of 7.2Mt–7.4Mt for 2027 looks modest at first glance, but it includes a major Secunda maintenance shutdown, whereas 2026 had none, a difference that management estimates was worth about 100,000t. On a like-for-like basis, the underlying production run rate is therefore still improving.
The newly commissioned coal destoning plant is an important part of Sasol’s operational turnaround. By stripping unwanted rock from coal before it reaches Secunda’s gasifiers, it improves feed quality and reduces stress on downstream equipment. Management says coal sinks are now below 12%, better than the original target it set. Operations head Victor Bester says: “With the destoning plant coming onstream, we’ve seen fewer breakdowns in our gasifier components.”
The benefit should increasingly show up in Sasol’s coal bill. Destoning allows the group to use more lower-quality coal from its own mines and, crucially, to reopen sections previously sidelined because their output fell short of Secunda’s specifications. Mining head Sandile Siyaya says external purchases should fall from 8.8Mt in 2026 to 5Mt–7Mt in 2027, a “significant improvement”. Own saleable production is targeted at 30Mt–32Mt, up from 28.4Mt last year, allowing more internally mined coal to displace costlier third-party purchases.
The reset in the international chemicals division is also beginning to look more durable. In the US, improved cracker availability lifted sales volumes by 20%, while normalised cash fixed costs fell 9%. Sasol has shut or mothballed weaker assets, cut costs and become more disciplined about prioritising value over volume. International chemicals generated $604m of adjusted ebitda in 2026, but 2027 guidance is a more conservative $450m–$600m, reflecting an assumption that the unusually supportive Middle East supply disruptions begin to ease.
Capital discipline is improving too. Capex has fallen from more than R30bn in FY2024 to R20.9bn last year, with management now targeting cumulative savings of R12bn–R14bn, though about half reflects timing rather than permanent cuts. Capex is expected to rise again to R23bn–R26bn in 2027 as the Secunda shutdown returns and mining requires replacement investment.
By contrast, depreciation and amortisation totalled only R13.6bn last year. That helps explain why Sasol’s apparently cheap earnings multiple should be treated with caution. Years of impairments have reduced the carrying value of major assets and, in turn, the depreciation charge. The gap between capex and accounting depreciation is narrowing, but free cash flow remains the more reliable valuation yardstick.
The balance sheet is also healthier. Net debt has fallen to $3.3bn from $4.1bn two years ago. Once it is sustainably below $3bn, Sasol’s dividend policy allows 30% of free cash flow to be returned to shareholders, making the final $300m or so of deleveraging a particularly important milestone.
Variables Sasol can’t control
The early assumption was that the Middle East supply shock would be severe but temporary. On crude, that is increasingly proving correct. US investment bank Goldman Sachs estimates Persian Gulf oil exports have recovered to about 23.3-million barrels a day, back more or less to 2025 levels, with crude exports running at 108% of last year’s average. Iran’s leverage over traffic through the Strait of Hormuz has weakened as US naval protection and increasingly sophisticated workarounds — including alternative routes, shuttle tankers and ship-to-ship transfers — have allowed flows to recover.
But this is hardly a return to normal. Freight and insurance costs remain punitive, while some Gulf producers are offering discounts of more than $30 a barrel to compensate buyers for the risk and cost of lifting crude from inside the Strait. In effect, high crude prices are helping to subsidise an expensive and dangerous export system.
The more important constraint has shifted downstream. Goldman estimates that exports of diesel, gasoline and jet fuel remain at only half normal levels, with Middle East refinery outages running about 2-million barrels a day above seasonal norms. Soaring diesel margins are encouraging refiners to maximise diesel output at the expense of gasoline, while tight naphtha supplies are adding pressure to petrol prices. Goldman also warns that a US diesel export ban, floated by President Donald Trump, could deepen the squeeze by forcing American refiners to cut runs and reducing supplies of other fuels as well.
Europe is particularly exposed because diesel makes up an unusually large share of its fuel demand. Washington is already pressing France and Germany to release emergency diesel stocks to cushion the shock.
JPMorgan concurs with Goldman. The investment bank estimates that Middle East crude exports have recovered to 98% of pre-war levels, while refined product exports remain at only 58% of normal levels. The message is that the industry has become better at operating through sustained disruption, not that the underlying stresses have disappeared.
Forecasting remains difficult. Goldman expects Brent to ease towards $85 a barrel by year-end and $80 in 2027, while petrol and diesel cracks could stay elevated for longer. That may be close to a sweet spot for Sasol. Secunda sidesteps crude altogether by using coal and gas as feedstock, while Natref, as a conventional refinery, benefits when fuel prices rise faster than the crude it processes. Moderately high oil prices combined with unusually wide refining margins could therefore be more profitable than a sharp rise in Brent alone.
Management, however, is not banking on favourable markets. CEO Simon Baloyi cautioned: “While we are encouraged by the strong performance in quarter four, it is too early to assume these market conditions will persist.” Instead, Sasol remains, in his words, “intensely focused on what we can control”, targeting a Southern African breakeven of $53–$58 a barrel in financial 2027.
Opinions vary
Analysts are becoming more constructive, though enthusiasm varies wildly. Bank of America upgraded Sasol to “buy” after the results and lifted its target price to R270 from R200. It forecasts 2027 free cash flow of about R33bn, supported by firmer oil and refining price assumptions, as well as improving volumes. Goldman Sachs remains more cautious, retaining its “hold” recommendation while raising its target to R198 from R174.
SBG Securities sits at the bullish end of the spectrum. Its September note carries a R450 target and forecasts 2027 ebitda of about R77bn, free cash flow of R40bn and a dividend approaching R16 a share. At prevailing commodity prices, it sees free cash flow rising to R50bn, equivalent to a yield of about 33% at the current share price.
Broader forecasts have also moved higher. The 2027 earnings per share consensus was revised up 31% after the results, from R37.95 to R49.85, while the revenue estimate increased from R277.9bn to R284.3bn and the consensus target price rose from about R203 to R214.
The latest data from the London Stock Exchange nevertheless shows a divided market. There are four “buy”, five “hold” and two “sell” recommendations. The average target of R244.30 compares with a share price of about R229, but is pulled higher by SBG’s R450 outlier. The median target is only R222, suggesting most analysts still believe a fair portion of the recovery is already in the price.
Company-specific problems may have dominated in recent years, but Sasol’s operational turnaround appears to be restoring some of the share’s historical sensitivity to the oil price. That makes the share a more credible way to gain energy exposure within an investment portfolio.
