Petrol prices are expected to hit fresh record highs despite a Morrison government plan to release taxpayer-purchased oil onto the global market.
Energy Minister Angus Taylor is finalising plans this week to release Australia’s strategic oil reserves in partnership with the US and other large nations in an attempt to curb rising oil prices amid the war in Ukraine.
The move will draw on Australia’s relatively small US-based fuel stockpile, less than two years after the federal government spent $94 million to boost its reserves under the auspices of delivering a “more secure fuel supply for Australian households”.
However, despite local motorists paying record-high petrol prices, TND has confirmed Australia’s strategic oil reserves will be released globally rather than straight to local taxpayer-subsidised refineries for cheaper consumption at Australian bowsers.
And economists doubt whether the global oil release will make much of a difference to petrol prices anyway, with escalating tensions between Russia and Europe driving talks of crushing new oil sanctions.
Deakin University’s Professor Samantha Hepburn said successive federal governments have failed to stockpile enough oil for a rainy day, leaving local motorists in the lurch now that war in Europe is pushing up prices.
“Given the costs associated with the 2020 build-up, the ideal situation would be that we would ease security concerns both at the domestic and at the global level,” Professor Hepburn told The New Daily.
“Unfortunately, this is really the product of government’s failure to stockpile a significant reserve over a number of years.”
Petrol price squeeze hits motorists
A lack of larger oil reserves has left the federal government with few options to counter a rapid rise in Australian bowser prices.
National average petrol prices rose to a record 183.9 cents per litre last week, capping off a 24.6 per cent gain over the past 12 months alone.
A cut in federally-levied fuel tax is one possible option to ease pain for motorists, but Prime Minister Scott Morrison has downplayed such a strategy and predicted the bowser squeeze will only be “temporary”.
Petrol prices are likely to become a bigger cost-of-living issue before the federal election, with oil prices rising fast amid the war in Ukraine.
Crude oil futures hit a decade high of $US$124 ($168) per barrel over the weekend, having risen by more than 40 per cent over the past month.
Russia’s expanded invasion of Ukraine is behind the latest increases – a problem that is slated to get worse as the US and Europe consider new sanctions on Russia’s oil exports, which account for a tenth of the world’s supply.
It takes about two weeks for higher oil prices to squeeze Australians at the bowser, so the clock is ticking to provide relief to households before mid-March.
Oil release unlikely to lower prices
Against this backdrop, the US-based International Energy Agency (IEA) is co-ordinating the release of 60 million barrels of oil to global markets.
It’s hoped the additional supply will ease consumer prices.
Under the plan, the US will contribute 30 million barrels, with the rest to come from other nations including Australia.
Negotiations are still ongoing, including over how much oil Australia will contribute and when, which will be announced “in the coming days”.
But economists are already sceptical the plan will deliver much for motorists.
Independent economist Saul Eslake said 60 million barrels isn’t much in “the grand scheme of things”.
“It’s around 60 per cent of a single day’s oil consumption,” he said.
“You wouldn’t think that would make a huge amount of difference.”
CommSec chief economist Craig James said oil prices have continued rising after the plan was announced, a signal that markets saw little in it.
“It failed to slow the lift in global crude prices,” he said on Monday.
UNSW’s Professor Richard Holden said the move is a “reasonable step”.
But it’s difficult to predict how prices will change amid the war, he said.
“It’s unlikely to be a large impact, I would suspect.”
Grattan Institute energy program director Tony Wood said Australia has an interest in establishing a secure global oil supply, given it is a net importer of petrol.
“Whether or not this affects local prices remains to be seen,” he said.
When the US released 30 million barrels of oil from its reserves last year, prices did fall over the proceeding month, but bounced back soon after.
And although the next release will be much larger, the world’s key oil export industries in the Middle East are resisting pressure to raise their output.
Experts believe such a move would be crucial to reversing higher prices.
“The main factor that could provide a break on rising oil prices is nuclear agreement between the US and Iran,” Mr James said.
“If that deal were to be consummated then Iran could add one million barrels per day to global oil supply.”
Governments failed to stockpile
The lack of government support for motorists as war raises fuel costs stems from a larger policy failure, Professor Hepburn said.
Australia is obliged under a 1974 treaty to “hold sufficient oil reserves” to cover at least 90 days’ worth of net oil imports if a severe supply issue occurs.
It requires Australia to release oil globally in the event of a supply issue.
“The idea being that member countries will co-operate as an emergency response mechanism to try and stabilise oil prices,” Professor Hepburn said.
But Australia has consistently failed to stockpile enough fuel reserves, with recent estimates suggesting it only holds about 68 days’ worth of supply.
“We cannot now meet both our international treaty obligations as well as responding to our domestic concerns,” Professor Hepburn said.
Stockpiling more oil as insurance against higher prices during war does incur costs though, Mr Wood said.
If the government required Australian-based companies to hold more oil, or funded more of its own storage requirements, motorists would find themselves paying for it, he said.
“The costs would flow through to consumers in a slightly higher cost of fuel, both for petrol and diesel.”