Record petrol prices are stressing households and businesses.
However, a nosedive in global oil prices doesn’t necessarily mean the price you pay at the bow will drop anytime soon.
“Over the past two weeks, we’ve seen oil prices drop about $22 a barrel,” said 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 pledge and the potential for a recession in the United States – all generating differing opinions about whether gasoline prices will fall and, if so, by when.
Costs rise at the pump
Gasoline prices have almost doubled in two years.
The average price of a liter of unleaded fuel in Australia was $2.11 last week, according to the Australian Institute of Petroleum (capital average was $2.09, regional average $2.13).
Last year around this time, the national average was around $1.50. In July 2020, the price was about $1.20 per liter.
There was a spike after Russia invaded Ukraine. That conflict – and the resulting sanctions against the aggressor – limited supplies from the oil-rich region.
However, with the COVID-19 lockdowns in China and fears of a recession in the US, oil demand has fallen, somewhat solving the supply problem.
Without that restriction driving costs up, global oil prices have fallen nearly 15 percent in a month.
“What we’ve seen historically is that when oil prices fall, we see gasoline and diesel prices fall,” said Vivek Dhar, mining and energy commodities economist at CBA Research.
In recent months, however, that trend has not been followed by a lack of space at refineries that convert crude oil into gasoline products.
So a drop in global oil prices a month ago did not lead to a drop in the price of refined diesel and gasoline.
Those prices in Singapore, where most of our petrol comes from, are falling.
Excise cut, uncut
There is also a bump in the road.
As cost of living pressures mounted for the recent federal election, then-Treasurer Josh Frydenberg introduced a temporary reduction in fuel tax†
For most consumers, halving the fuel tax meant a price drop of 22 cents per liter of petrol.
Labor backed the austerity at the time and now supports ending it after six months, as intended.
“It ends in September, even that six-month measure will cost about $3 billion,” new treasurer Jim Chalmers told RN Breakfast this week.
As of Sept. 28, Mark McKenzie says, it’s possible for prices to rise that much, but it could also be dampened because the potential rise comes as the price for each barrel of oil falls.
“In general, the markets are predicting that the oil price will start to fall in the coming months and that should absorb some of that increase as we get closer to the change in excise taxes,” he said.
In Australia, people struggle with inflation – increases in the cost of goods and services.
One of the biggest increases is in fuel. For many, it’s an unavoidable cost, with the perverse impact that the inflationary impact drives the need for interest rates are rising on mortgages.
However, the lockdowns in China due to COVID-19 and fears of a recession in the US are pushing oil and gasoline prices down as demand slows down.
Even the professionals – who monitor production and sales around the world – disagree about what’s going to happen.
Some suggest the oil price will fall by 25 percent by the end of December, amid fears of a recession.
“But we still have a share [of traders] suggesting that the market will remain tight and that we will see a 10 percent increase. So it’s a gamble for everyone at the moment.”
Mr Dhar says global oil and local fuel prices will stabilize by the end of 2022.
“We’ve seen emerging and emerging markets have to slow down and you can already look at Sri Lanka, Laos,” he said.
“But now the question is what happens to the advanced economies. I think a slowdown is now expected.”
Australia left behind?
Even with prices near record highs, Australia’s petrol is one of the cheapest and most lightly taxed in the world.
And more and more often we have a conversation about who has the best 2G phone.
That’s because the world is rushing to electrify its fleet.
Norway may be one of the world’s largest oil producers, but by 2025, people will be banned from buying a new passenger vehicle that runs on it.
Already in Norway, 85 percent of passenger car registrations are for electric vehicles.
In Australia, it’s less than 1 percent, meaning Australians will be focused on petrol prices for a while yet.
Posted † updated
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