UPDATED The benchmark price of crude oil has plummeted even further to US$22 a barrel, but while that change was forecast to bring sub-dollar petrol to Australian motorists, it appears that most fuel retailers across the country are reluctant to pass on any savings.
At the time of writing, the average price of a litre of 91-octane petrol was $1.30 and $1.36 in Melbourne and Sydney respectively and trending upwards. In Brisbane, the average is at $1.45 and climbing, while it's a more reasonable $1.18 per litre in Western Australia.
South Australia, with its better-regulated fuel market, is the only state where the average bowser price for 91 unleaded is below a dollar - right now it costs 98.5 cents per litre according to the Royal Automobile Association of SA.
Of course, the news is worse for 95RON and 98RON, while diesel prices have remained relatively static over the last month at around $1.44 a litre nationally.
The high average price of fuel defies what's happening in global oil markets, where a protracted price war between Saudi Arabia and Russia is flooding the market with large quantities of oil, and depressing the price of that oil as a result.
As well, oil consumption has plummeted by a million barrels a day in the face of the contraction of the airline business and the slowdown of China in the wake of the coronavirus pandemic.
In the midst of this, the Australian Competition and Consumer Commission has declared that it will be watching fuel retailers to ensure any savings are passed on to motorists - though it seems the retail watchdog has already missed a few tricks.
The global price of oil has been in steady decline since early January, where a single barrel of crude oil was trading at US$61. However, values fell off a cliff in early March to US$28 per barrel before stabilising around US$30-31 - and then plummeting again on March 18 to US$20.83 a barrel.
The unprecedented fall in value could, according to some experts, translate into country-wide average bowser prices of around a dollar per litre for 91-octane unleaded - something we haven't seen since the early noughties. It could even dip below the dollar mark.
However, the ACCC is concerned that Australian fuel retailers will drag their heels on passing on any savings. According to the ACCC, changes in the cost of refined petrol usually takes between one to two weeks to impact on retail pricing at Australian fuel stations.
However, with bowser prices in Melbourne, Sydney and Brisbane appearing to be on an upward trend, it appears retailers are willfully defying market movements. Of course, the impact of the coronavirus pandemic and the introduction of social isolation measures may be having an effect.
Rumours of fuel rationing were circulating recently and may have led to a surge in motorists filling up, but with global oil supply currently experiencing a massive glut, it's hugely unlikely that there will be a shortage of fuel anytime soon. Put your jerrycans away.
If anything, social isolation and reductions in industrial activity should see demand for fuel drop significantly, which should see the cost of fuel drop.
“Australian petrol prices are primarily determined by international crude oil and refined petrol prices. Therefore, a sustained decrease in these prices should lead, everything else being equal, to lower petrol prices at the bowser,” said ACCC chairman Rod Sims.
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“We will be looking at the market very closely, to determine if further sustained reductions in international prices are being passed onto consumers, and we will be publicly identifying those retailers that are not passing on reductions.”
However, the ACCC acknowledges that its ability to regulate retail pricing is limited:
“The ACCC cannot control the petrol prices companies set but we can call out problematic price setting which can influence company behaviour,” Mr Sims said.
“At this time the Australian economy needs all the assistance it can get, and lower world oil prices are one of the few positives from current world events.”
So why is oil getting cheap?
An oil trade war between Saudi Arabia and Russia could see the price of fuel at the bowser drop to around a dollar per litre, potentially ruining the economies of some oil-producing nations but delivering a huge advantage to cash-strapped motorists in the short term.
The petroleum industry has already been hit by reduced demand due to a slowdown in global industry and travel thanks to coronavirus, but a new dispute between Saudi Arabia and Russia on the price of crude oil has seen the cost of a barrel of oil plummet as both countries begin flooding the international oil market in an effort to depress prices – and thus punish their rivals.
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The dispute was allegedly sparked by Saudi Arabia advocating a coordinated reduction in oil output by all OPEC+ countries (which includes Russia) in an effort to keep the price of the commodity high as global demand falls due to the Coronavirus response.
Russia's government disagreed with that approach and has gone rogue, jacking up output to instead drive the price down.
The motivation is largely political - dropping the price of oil below sustainable levels will damage the ability of other countries to maintain a viable oil industry (particularly the USA, which relies on a high oil price to keep its industry in the black).
As other countries trim back their oil capabilities as a result, the power is left with those countries who can afford to wait out the price slump.
At the time of writing, a barrel of West Texas light crude (the global benchmark oil price) was trading at US$22.60 less than half what it was trading for in February - and a mere third of what it cost at the start of this year.
With Australian economists reckoning that every US$1 fall in the cost of a barrel of crude results in a one-cent reduction in the bowser price of unleaded petrol, a per-litre cost of roughly a dollar – or less – seems feasible given current pricing Australian unleaded, even allowing for the Government's fuel excise and retailer profit margins.
Will it happen? We’ve been in similar territory before, with the national average unleaded price dipping to 106 cents per litre back in 2001. However, if the Saudi-Russia dispute continues much longer, then bowser prices could even fall into two-digit territory - the last time we had a national average that low was back in 2004.
And it could be quite protracted. Russia’s finance ministry says it has sufficient reserves to sustain oil prices as low as US$25 a barrel for “six to ten years”. Whether Saudi Arabia and its fellow OPEC members (which control roughly 35 percent of global oil production) can match that remains to be seen.
Another unknown aspect is whether Australian fuel retailers will pass on any savings to their customers – and the speed at which they’ll do so.
We’ve written before about how the petroleum retail industry in this country has become dominated by larger companies who have all bumped up their profit margins on fuel, and there’s also the increased cost of fuel processing to be considered as well. Both are factors that weren’t as impactful back in 2004.
Another factor in lower fuel prices will be the ongoing effect of the coronavirus pandemic, which has already seen a drop in demand for crude oil globally of around one million barrels of oil a day over the same period in 2019.
Are big fuel savings just around the corner? Quite possibly, but the time lag between reductions in crude oil versus reductions in the price of petrol and diesel means these changes won't be instant.
With any luck, however, the real winners in the OPEC/Russia fight will be Australian motorists.