- A R1.50 cut in the petrol levy expires on Tuesday, and an announcement on its extension is expected soon.
- Without an extension of the cut, petrol prices could be hiked by almost R4 on Wednesday.
- But government finances will suffer if the hike extension is granted.
Petrol prices may be hiked by close to R4 a litre on Wednesday - unless government steps in soon.
Fuel prices are usually adjusted on the first Wednesday of every month.
According to the latest data from the Central Energy Fund, petrol prices must be adjusted by R2.43 (95 unleaded) a litre and R2.31 (93) on Wednesday to compensate for oil prices and a weaker rand.
Combined with the fuel levy of R1.50, this would hike the price of 95 unleaded petrol by R3.92 from current levels, while 93 unleaded petrol would be R3.81 more expensive. Diesel prices could rise by more than R2.50 a litre.
The levy was cut by R1.50 a litre for April and May as government sought to relieve the economic stress of surging fuel prices.
Around R6 billion of the state's strategic oil reserves were sold to fund the levy cut.
The hope was that oil prices would cool by the end of May, when the levy was supposed to fall away. Instead, Brent crude oil was trading above $120 per barrel on Monday, around its highest levels in two months.
This has left government with a major dilemma: It doesn't have much more to sell in the way of reserves, and its finances are in such a perilous state that it can't afford not to earn the petrol levy income.
Over the past financial year, government debt reached R4.3 trillion. On average, 20 cents of every rand collected in tax is now being spent on debt repayments, which is crowding out spending on health and basic education.
At the same time, South Africans are facing their own financial strain: food and fuel prices have rocketed over recent months, with more pain to come.
If the petrol levy cut isn’t maintained beyond May, inflation may reach 6.8% to 7% in June, says chief economist of Old Mutual Investment Group, Johann Els. Thiswill dent economic growth.
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 months 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.