Record petrol prices are causing stress for households and businesses.
However, a nose-dive in global oil prices will not necessarily mean that the price you pay at the bowser will soon fall.
“Over the last two weeks, we’ve actually seen oil prices dropped by about $22 a barrel,” says Mark McKenzie, the chief executive of the Australasian Convenience and Petroleum Marketers Association.
However, the situation is complicated, with several factors — such as the invasion of Ukraine, refinery capacity, a costly pre-election promise and the potential for a recession in the United States — all generating differing views about whether petrol prices will fall and, if so, by when.
Costs soar at the pump
Petrol prices have almost doubled in two years.
The average price of a litre of unleaded fuel in Australia last week was $2.11, according to the Australian Institute of Petroleum (the capital city average was $2.09, the regional average $2.13).
This time last year, the national average was around $1.50. In July, 2020, the price was around $1.20 a litre.
There was a spike after Russia invaded Ukraine. That conflict — and resulting sanctions against the aggressor — restricted supplies from the oil-rich region.
However, with COVID-19 lockdowns in China and fears of a recession in the US, demand for oil has fallen, going some way to fixing the issue of supply.
Without that constriction bidding up the cost, global oil prices have slumped almost 15 per cent in a month.
“What we’ve seen, historically, is when oil prices fall, we see prices of petrol and diesel fall,” says Vivek Dhar, mining and energy commodities economist at CBA Research.
However, over the past few months, that trend hasn’t been followed, due to a lack of space at refineries that turn crude oil into petrol products.
So, a fall in the global oil prices a month ago did not lead to a fall in the price of refined diesel and petrol.
Those prices in Singapore — where the majority of our petrol comes from — are sliding.
Excise cut, uncut
There’s also another bump in the road.
As cost-of-living pressures mounted before the recent federal election, then-treasurer Josh Frydenberg introduced a temporary cut to the fuel excise.
For most consumers, cutting the fuel excise in half meant a 22-cent drop in the cost of a litre of petrol.
Labor supported the cut at the time, and is now backing it to end after six months, as intended.
“It ends in September, even that six-month measure costs about $3 billion,” new Treasurer Jim Chalmers told RN Breakfast this week.
From September 28, Mark McKenzie says, it is possible prices may rise by that much, but it could also be muted because the potential increase comes as the price for every barrel of oil is falling.
“Generally, the markets are predicting that the oil price will start to fall over the next couple of months and that should absorb part of that increase as we get closer to the change in excise,” he said.
In Australia, people are struggling with inflation — increases in the costs of goods and services.
One of the biggest surges has been in fuel. For many, it’s an unavoidable cost, with the perverse impact that its inflationary impact is pushing the need for interest rates to rise on mortgages.
However, lockdowns in China due to COVID-19, and fears of a recession in the US, are deflating the price of oil and petrol, because it’s reducing demand.
Even the professionals — who track production and sales across the globe — can’t agree what’s going to happen.
Some are suggesting oil will fall 25 per cent by the end of December, due to fears of a recession.
“But we still have a proportion [of traders] suggesting the market will remain tight and that we will see a 10 per cent rise. So it’s anyone’s bet at the moment.”
Mr Dhar says global oil and local fuel prices will settle by the end of 2022.
“We’ve seen emerging and developing markets have to slow down and, already, you can look at Sri Lanka, Laos,” he said.
“But now the question is what’s happening with the advanced economies. I think a slowdown is now expected.”
Australia left behind?
Even with prices at near-record highs, petrol in Australia is some of the cheapest and most lightly taxed in the world.
And, increasingly, we’re having a conversation about who has the best 2G phone.
That’s because the world is rushing to electrify its vehicle fleet.
Norway might be one of the world’s biggest oil producers but, by 2025, people will be banned from buying a new passenger vehicle that runs on it.
Already in Norway, 85 per cent of passenger vehicle registrations are for electric vehicles.
In Australia it’s less than 1 per cent, meaning Australians will be focused on petrol prices for some time yet.
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