What Is Going on With Petrol Prices? Why Fuel Tax Isn’t the Only Thing Raising Costs

prediction petrol price australia

If you thought paying $2.30 a litre was bad back in the good old days of March this year, brace yourselves for a “looming” increase to $2.50.

That’s where Greg Bourne, former head of BP Australasia, reckons prices could be headed over the coming months as global instability hits home at the pump.

Depending on where you live, prices are already moving north. Since the fuel excise duty of 25c per litre was reinstated at the end of last month, average prices in capital cities have started to shift. Counterintuitively, many have gone down, but they’re not expected to stay down and in some cases have jumped right up.

Perth, for example, has seen petrol increase by an average of 15 cents over the past week, according to data from the Australian Institute of Petroleum. This is in spite of the weekly national average dropping by 0.7 cents.

This is partly due to the way that petrol is sold, with retailers moving their goods through what is known as a ‘petrol cycle’ where prices rise and fall, but also because retailers have stock bought and taxed at the old rate which is still going through the system.

Once that fuel is sold however, it’s more than likely that we’ll see prices shooting up. Here’s what you need to know about where they’re headed, for how long, and why.

Petrol Prices in Australia Right Now

Although Perth has been hit by a petrol spike in the period following the reintroduction of the fuel excise, most major capital cities are seeing a decrease. Sydney saw a drop of 6.7 cents, Melbourne saw a drop of 6.2, and Brisbane cashed in with a 7.5 cent drop.

The Australian Competition and Consumer Commission (ACCC), who monitor petrol cycles in major cities, note that most cities are on track for a decline in prices over the next few days and weeks.

This is because price cycles in most major capital cities had “peaked” by the time the fuel excise was reinstated, indicating that the tax has not yet had time to be factored into the longer-term price. The next price cycle, which happens roughly every two weeks depending on where you live, could see prices rise even higher to factor in the excise.

Since the rise seen in Perth, prices have declined again over the last week, dropping by as much as 12.5 cents on average. However, the ACCC warn that petrol is likely at its lowest point right now in the city and that it could shoot back up soon.

Those in Adelaide, Brisbane, Melbourne, and Sydney should expect prices to head downwards, with the ACCC advising consumers to shop around if they don’t need to fill up right now.

Petrol Price Expectations

Most experts are predicting that the coming weeks will see a rise in petrol prices, with the end of petrol cycles rising to bring in the reinstated fuel excise.

Craig James, the chief economist at CommSec, has said that this conflation could see prices hit $2.15 in the coming weeks, although that’s likely at the extreme end.

“But the ready reckoner is that a ‘fair’ price for fuel is around $1.90 – with the wholesale price near $1.71 a litre and the gross retail margin for retailers near 15-20 cents a litre,” he told PerthNow.

James added that higher fuel prices add to inflation which would have a knock-on effect that would likely see the RBA raise interest rates further to curb the rise.

Bourne, the ex-BP boss, sees $2 per litre becoming “the new norm” in the long-term future as global pressures mount.

For him though, that’s not such a bad thing, as it would put further pressure on consumers and governments to speed up the transition away from internal combustion engine vehicles and towards electric.

The Global Impact

Why Bourne sees our new normal as so eye-wateringly high is down to a number of factors. The ACCC notes that the international market for fuel, retailer costs, and the value of the Australian dollar all impact the price we pay at the pump.

Currently, we’re seeing big shifts in all of those areas.

The international market, having been rocked by Russia’s invasion of Ukraine, is set to get even more choppy as the European Union announces further sanctions on Russia. No new oil will be able to be brought in by sea from December, and all refined oil products will be banned from February next year.

In response to the squeeze that the West has put on Russia, the big oil cartel that largely controls international prices, the Organisation of Petroleum Exporting Countries or OPEC, announced that they would be cutting oil production.

Last week they confirmed they would be slashing their output by 2 million barrels a day, a decision largely led by Russia and Saudi Arabia. Following the eternal laws of supply and demand, this is going to make fuel more expensive in the long run. Great if you’re selling it, not great if you’re buying.

This news is somewhat tempered by the fact that fuel prices are dropping, impacted by global fears of a recession and a COVID outbreak in China. OPEC are getting ahead of the game here and artificially inflating prices to counter these effects.

In addition, while the world is “bracing for another global downturn”, the Australian dollar has absolutely tanked against the US dollar. The ASX 200 dropped by 1.4% on Monday, and a further 0.35% on Tuesday, seeing the dollar sink to its lowest level in nearly three years against its American counterpart. One Australian is now worth just 0.63 American.

Given that almost all international oil trade is done in US dollars, this means further pain for us at the petrol pump as fuel simply becomes more expensive to purchase upstream.

It’s a heady mix of bad news and, if petrol kept well, we’d tell you to stock up now. Since it doesn’t, maybe you’re better off getting the train?

Related: The Petrol Hacks You Should Be Using to Fill Up on the Cheap

Related: Australia Doesn’t Buy Petrol From Russia, So Why Are We Paying So Much for Fuel?

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