Australian motorists will be charged sky-high petrol prices for months to come despite falling global oil prices, a leading analyst has warned.
Households in Melbourne, Sydney and Brisbane are already paying more than $2 a litre for petrol ahead of the school holidays, as a cost-of-living crisis continues to bite into budgets and threaten the economy.
Falling global oil prices this week sparked hopes of much-needed hip-pocket relief at local petrol stations in coming weeks.
But Commonwealth Bank analyst Vivek Dhar says those hopes are set to be dashed, as a “rare” disconnect between oil and refined petrol markets is keeping costs high.
Mr Dhar told The New Daily that Australia’s benchmark Singapore Gasoline price has barely budged in the face of falling oil prices, amid a massive squeeze on global refining capacity.
This means motorists will likely continue suffering under high petrol prices until a predicted slowdown in the global economy reduces fuel demand later this year, he explained.
“This automatic view that lower oil prices means lower fuel prices isn’t quite true,” Mr Dhar said.
“There’s a wedge between what we’re seeing in refined [petrol] prices and oil prices.”
Holiday petrol price pain
Mr Dhar’s analysis makes for sombre reading for Australian households as the winter school holidays kick off in late June and July.
Motorists in major capital cities are already paying much more than $2 a litre for petrol on average, according to the latest MotorMouth data.
Prices across Australia’s three largest capitals have risen 8.8 per cent on average in June alone – despite a temporary fuel tax cut shaving 22 cents per litre (CPL) from headline prices.
A small silver lining is that east coast market cycles appear to have just peaked, meaning that local service stations are likely to charge slightly less for fuel next week than earlier this month.
But with average prices still hovering near record highs, such price movements offer minimal budget relief. And it won’t be long before local service stations start jacking up prices again.
The ACCC is advising motorists in Melbourne, Sydney and Brisbane to delay filling up because prices should get cheaper in the coming week.
It comes as the worst cost-of-living squeeze in two decades forces many households to make big changes to their budgets and lifestyles.
National Australia Bank (NAB) data published on Thursday found 46 per cent of Australians are cutting back on driving to avoid high petrol prices.
Oil plunge fails to deliver relief
Global oil prices – as measured by Brent Crude futures – have fallen 11 percent from earlier highs of $US124 ($180) a barrel and are now trading around $US110 ($159) a barrel.
This oil sell-off has been driven by fears of a global recession as inflation and interest rates rise in major economies like the US and Europe.
It would typically flow through to motorists in much lower petrol prices.
But the Singapore Gasoline price – a benchmark for Australian bowsers – has only fallen 0.6 per cent in response to cheaper oil, dashing hopes that households would see cheaper petrol prices over the school holidays.
“Australian consumers and businesses are unlikely to see much relief usually associated with lower oil prices,” Mr Dhar said on Friday.
He told TND this disconnect is “rare” and has been caused by a squeeze on global refining capacity.
Mr Dhar said the problem has three causes – one longer-term trend combined with two more immediate market shocks.
The longer-term underlying problem is that global refining capacity has fallen during the pandemic, with companies responding to supply gluts in 2020 by shutting down their operations.
Global oil refining capacity fell for the first time in 30 years during 2021.
As a result, less of the cheap oil is being made into cheap petrol.
On its own, this trend wouldn’t have been enough to create a price disconnect, but two other immediate shocks have also rocked global petrol markets.
The first of these is the war in Ukraine, which has knocked Russia – a major refiner of oil – out of Western markets.
The second is a crackdown in China on refined petrol exports, which was announced in response to its own domestic shortages of fuel late last year.
All this means petrol prices are unlikely to subside until demand starts to fall, something that’s expected to happen later this year as the global economy enters a slowdown.
But because the federal government’s fuel tax cut expires in September, petrol price falls will be muted when compared against current costs.