Petrol price relief 'at least a year away' say economists

Watch petrol prices around the nation are at their highest level in more than a decade

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The excise has been halved, but the current price of petrol is still rivaling the price record set in 2008.

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Why are petrol prices rising?

Petrol prices are continuing to trend upwards in every state and territory, despite the halving of the fuel excise months ago.

At the time of publication, the average price of unleaded petrol and diesel in every state and territory had risen to more than $2 per litre.

Right now, the Northern Territory faces the highest average costs, at $2.18 per litre.

Nationwide, the costs are now rivaling the record which was set more than a decade ago. In 2008, the nation's average price of petrol was equivalent to $2.12-2.19, when aggregated to today's dollars.

It's a sizable jump in a short amount of time, considering prices fell to below $1.42 on average in Sydney when the pandemic lockdown hit in March 2020.

What's forcing the price up so high?

The main culprit to blame for the skyrocketing petrol price is Russia. Or, to be more specific, the rising insecurity surrounding Russia's invasion of Ukraine.

"We're seeing a significant withdrawal of supply from Russia simply because of trade embargoes," said Associate Professor Liam Wagner, energy and economics expert from the University of Adelaide.

PRICE HIKE: Motorists are being warned that the petrol price hike is not yet over. Picture: FILE

PRICE HIKE: Motorists are being warned that the petrol price hike is not yet over. Picture: FILE

At the same time that oil demand is increasing, the supply of oil is decreasing.

"I think what the real issue with the international oil markets is, is there's too much market power," Professor Wagner said.

"We have very few suppliers of oil. You know, there's probably a couple of dozen countries that supply the world with their oil and, you know, we rely on petroleum products for transport in particular.

"We rely on petrol. For the supply chain, we rely on diesel. And diesel basically drives everything, you know, getting people to and from work, yeah OK that's unleaded petrol, but getting your food to the supermarket, getting your clothes to the shops, that is all done by diesel."

As well as the international pressures, Australia also faces a distinct shortage of fuel due to its limited strategic petroleum reserves.

"Australia doesn't have strategic petroleum reserves and we have for the past 10 years been well below our mandated IEA (International Energy Agency) storage requirements onshore," Professor Wagner said.

"We have about 60-odd days worth of storage onshore which is well below the 90. So we've gone now more than 120 months in a row of being under the IEA international treaty requirements."

What happened to the excise cut?

Motorists are subject to paying an additional tax on the sale of fuel. This tax is called the excise.

In March, the then-Liberal Nationals federal government announced a six-month reprieve to the excise, bringing it down from 44.2c per litre to 22.1c per litre.

That reprieve is expected to run out in September when the price will bounce back up to include the 44.2c per litre excise.

RECORD LEVELS: In today's equivalent dollars, the petrol price rose to about $2.12-2.19 in 2008, and now, the petrol prices are sitting around that record again. Picture: ACM

RECORD LEVELS: In today's equivalent dollars, the petrol price rose to about $2.12-2.19 in 2008, and now, the petrol prices are sitting around that record again. Picture: ACM

Professor Wagner believes the cut to the excise may have just delayed the inevitable.

"It's a bit of a paradox, you've suddenly given people a considerable discount to their fuel of around 10 per cent at the time," Professor Wagner said.

"So you know, I would expect demand to then go up to be able to meet with that new, much lower price and once the price returns to where it should be with the removal of the discount for the excise, I suspect demand will significantly drop.

"When the excise is brought back to its full force we'll likely see at 20-odd cent jump overnight in petrol prices."

In light of that bounce back, Professor Wagner describes the excise cut in March as "entirely reckless" in that it served to only "increase demand for petrol at a lower price" without softening the shortage at all.

"So at the time, obviously, it was to deal with concerns about the cost of living, however, because of an increase in demand for fuel we've now seen, of course, the increase in price," Professor Wagner said.

Will petrol need to be rationed again?

This is not the first time Australia has faced petrol shortages, and in the past, the situation has proven even direr than it currently is.

World storage levels of petroleum dropped significantly, forcing up the petrol price in 2011 after the Arab Spring began.

Unrest in the Middle East following September 11, 2001, forced up the price of petrol enormously as well.

During the petrol strikes of the 1960s-1980s, motorists played a not-at-all fun game of 'odds and evens' with their number plates.

Cars that had odd-numbered licence plates were allowed to fill up their tanks on certain days, and on the other days, even number plates were allowed a top up.

Aside from its inconvenience, it also led to a sharp rise in vehicle and petrol theft across the nation.

Professor Wagner does not believe the conditions are likely to see a repeat of that time now.

"I don't think we'll see a situation like that for quite some time unless there is a disturbance in the oil market," he said.

"I think that you know, the secure shipping communication lines are paramount to providing us with a fair proportion of the security of supply of oil. If that was to be disturbed, yes, we will see rationing.

"[But] I think we'll see, you know, prices just continue to go up based on the supply internationally of wholesale oil. But I don't think we're going to see rationing anytime soon. I hope not, because it's bad. It's super bad."

When will relief come?

Relief in the price of petrol might be a long way off. At this point, the advice is to be prepared for an even higher jump in the price once the full excise is restored in September.

"I think that we're going to be facing high petrol prices for quite some time," Professor Wagner said.

"Well, I think we're looking beyond the year. Yeah, it's not going to be easy."

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