The general fuel levy will be cut by R1.50 per litre from Wednesday next week to 31 May 2022, Finance Minister Enoch Godongwana announced on Thursday.

This will reduce the levy for petrol from R3.85 per litre to R2.35 per litre. The levy on diesel will be reduced from R3.70 per litre to R2.20 per litre.

Around R6-billion of the state's strategic oil reserves will be sold to fund this tax hit, which means it won't impact government debt.

In addition, government plans these changes in fuel prices from 1 June:

• A reduction in the basic fuel price of 3c per litre.
• The Demand Side Management Levy (DSML) of 10c per litre on 95 unleaded petrol sold inland will be scrapped.
• A price cap will be introduced on 93 octane petrol, which means retailers can sell below the regulated prices.
• Government will stop publishing guidance on diesel prices to promote greater competition.
• The Regulatory Accounting System (including the retail margin, wholesale margin and secondary storage and distribution margins) will be reviewed to assess whether adjustments can be made to lower the margins over the medium term.

Petrol prices have climbed by more than 30% over the past year due to surging oil prices, and large hikes were in store for next week.

According to the latest data from the Central Energy Fund, 95 octane petrol was set to increase by R1.81/litre, 93 octane is expected to climb by R1.73/l, diesel by between R2.97/l and R3.12/l on Wednesday next week. Following the temporary cut to the general fuel levy, petrol prices will rise by only around 23c to 31c.  

"The intention of the temporary reduction of the general fuel levy is to support a phasing in the fuel price increases that we are expecting in the short term. This will go some way in assisting South Africans to adjust to the new reality," Godongwana said in Parliament on Thursday.

Godongwana told the plenary that his maiden Budget Speech in February introduced no fuel levy increases as a way of easing pressure on South Africans. The speech took place the day before Russian President Vladimir Putin began his campaign in Kyiv, Ukraine.

Oil price impact

Local fuel prices are determined by international oil prices, as well as the dollar-rand value, as South Africa buys oil in dollars.

Oil prices have been soaring over the past month amid the fallout from Russia's invasion of Ukraine. Russia is the world's third-largest producer of crude oil, and the expectation that it will be locked out of the market has caused a surge in oil prices.

Traders are scrambling to secure oil supplies with Russia, unable to deliver some of its oils due to shipping and banking restrictions.