Gas station prices near record but when will they drop?
Record gasoline prices cause stress for households and businesses.
However, a drop in global oil prices doesn’t necessarily mean that the price you pay on bowser will drop immediately.
“Over the last two weeks, we’ve actually seen oil prices drop by around $22 a barrel,” said Mark McKenzie, 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, expensive pre-election promises, and a potential recession in the United States — all generating differing views on whether gasoline prices will fall and, if so, when.
Costs spike at the pump
Gasoline prices have almost doubled in two years.
The median price of a liter of unleaded fuel in Australia last week was $2.11, according to the Australian Institute of Petroleum. (Capital average is $2.09, regional average $2.13).
This time last year, the national average was around $1.50. As of July 2020, it’s around $1.20 per liter.
There was a spike after Russia invaded Ukraine. That conflict — and the resulting sanctions against aggressors — is limiting supplies from the oil-rich region.
However, with the COVID-19 lockdown in China and fears of a recession in the US, oil demand has fallen, which should fix the supply problem.
Without restrictions that drive up costs, global oil prices have slumped nearly 15 percent in a month.
“What we’ve seen, historically, is when oil prices go down, we see gasoline and diesel prices go down,” said Vivek Dhar, mining and energy commodities economist at CBA Research.
However, over the past few months, that trend has not been followed, due to the lack of space in the refineries that convert crude oil into gasoline products.
So, the decline in global oil prices a month ago did not lead to a decline in the prices of diesel and refined gasoline.
Prices in Singapore — where most of our fuel comes from — are falling.
Excise cut, not deducted
There are also other bumps in the road.
As cost of living pressures mounted before the recent federal election, treasurer Josh Frydenberg introduced temporary cuts to fuel taxes.
For most consumers, cutting the fuel tax in half means a 22 cent reduction in the cost of a liter of gasoline.
Labor supported the cuts at the time, and now supports them ending after six months, as intended.
“It ended in September, even that six-month action cost about $3 billion,” new Treasurer Jim Chalmers told RN Breakfast this week.
Starting Sept. 28, Mark McKenzie said, there’s a chance the price could go up that much, but it could also be muted because the potential upside comes as the price of every barrel of oil falls.
“In general, the market expects that oil prices will start to fall in the next few months and that will absorb some of that gain as we get closer to the excise tax change,” he said.
Recession pressure
In Australia, people are battling inflation — rising costs of goods and services.
One of the biggest spikes occurred in fuel. For many, this is an unavoidable cost, with the detrimental effect that the impact of inflation will drive the need for higher interest rates on mortgages.
However, the lockdown in China due to COVID-19, and fears of a recession in the US, are driving down oil and gasoline prices, as they dampen demand.
Even the professionals — who track production and sales around the world — couldn’t agree on what was to come.
Some suggested oil would fall 25 percent by the end of December, due to recession fears.
“But we still have proportions [of traders] indicates the market will remain tight and we will see a 10 percent increase. So it’s anyone’s bet at the moment.”
Mr Dhar said global oil and local fuel prices would settle 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 developed economies. I think a slowdown is now to be expected.”
Australia lagging behind?
Even at near record high prices, gasoline in Australia is among the cheapest and least taxed in the world.
And, more and more, we chat about who has the best 2G phone.
It was because the world was rushing to electrify its fleet of vehicles.
Norway may be one of the largest oil producers in the world but, by 2025, people will be barred from buying new passenger vehicles operating on it.
Already in Norway, 85 percent of passenger vehicle registrations are for electric vehicles.
In Australia it’s less than 1 percent, meaning Australians will be focusing on gasoline prices for some time.
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