The average price of unleaded petrol across the country reached a whopping $2.11 per litre in the week ending September 24. In early June, that same figure sat at under $1.75.
So why are prices rising to record levels, and when are they likely to start declining? Let’s take a look.
Driven mostly – but not entirely – by China, the demand for oil is growing.
According to the International Energy Agency (IEA), global appetite for the resource will grow by 2.2 million barrels per day (mb/d) in 2023.
And while supply is growing too, it’s not keeping up.
“An expected rise in global oil demand of 1.5 mb/d in 2H23 over 1H23 levels will eclipse supply by 1.24 mb/d,” the IEA said in its September oil market report.
A key contributor to that shortfall is Russia, and its partnership with Saudi Arabia.
The two nations are massive oil producers, but announced earlier this year that they are extending supply cuts.
Unsurprisingly, that sent prices skyward.
“The Saudi-Russian alliance is proving a formidable challenge for oil markets,” the IEA wrote.
“After oil prices traded in relative calm during August, with volatility at multi-year lows, the decision by Saudi Arabia and Russia in early September to extend output cuts of a combined 1.3 mb/d through year-end triggered a price spike in North Sea Dated above $90/bbl to a 10-month high.”
At the same time as oil demand is outstripping supply, the buying power of the Australian dollar is falling.
From year-long highs of over 70 US cents in January, it has since fallen to under 64 cents in September.
The reasons for this are varied, and include concerns around the Chinese economy – Australia’s biggest trading partner – as well as interest rates rising faster in the US than here, pushing up the value of the greenback compared to the Aussie dollar.
Regardless of the reasons, the result is it’s more expensive for Australian businesses to buy imported goods even if their global price remains steady.
In the case of oil, where prices have risen, it compounds those cost increases.
So when are prices going to come down?
There’s good news and bad here.
The good news is that prices have begun to ease in Australia over the last few days – although they’re remaining at uncomfortably high levels.
“While the price of regular unleaded has been slowly falling over the last week in Sydney, motorists should still expect to see prices continue over $2 a litre over the coming weeks,” the NRMA’s Peter Khoury said.
The IEA also has a sliver of good news, forecasting the growth in oil demand will slow “sharply” next year.
And even if Russia and Saudi Arabia wind back their production cuts, the oil market is still ripe for volatile price swings and spikes.
“Unwinding cuts at the start of 2024 would shift the balance to a surplus,” the IEA wrote.
“However, oil stocks will be at uncomfortably low levels, increasing the risk of another surge in volatility that would be in the interest of neither producers nor consumers, given the fragile economic environment.”