Australian motorists could be hit by higher petrol prices as the world’s largest oil exporting nations cut production, analysts say.
The Australian government reinstated the full fuel excise tax in September after the Morrison Coalition government introduced a temporary, six-month cut to lower the cost of fuel at a time of rising inflation.
Since it was reintroduced, 24c has been added to the cost of fuel by the litre, but petrol prices have largely remained stable and not yet returned to the more than $2 highs in May. However, a recent decision by the Opec+ oil cartel to slash output has analysts predicting prices will increase.
Russia’s invasion of Ukraine has been a key factor in driving up the price of oil, which climbed to US$130 a barrel earlier this year, but has since fallen back to under $100 a barrel.
High oil prices have exacerbated the cost of living crisis and inflation globally.
Founded in 1960, the cartel of the world’s biggest oil producers emerged as a political and economic force with the 1973-74 US oil embargo, which caused oil prices to spike. The club consists of 13 countries, with Saudi Arabia the biggest producer, followed by Iraq and Iran.
In response to the 2014-16 oil price slump, Opec partnered with Russia in December 2016 to agree a cut in production of 1.8m barrels a day. That curb, the first of its kind in 15 years, drove up the price of oil. In May 2017, the cuts were extended until the end of March 2018.
Opec's official members are: Algeria, Angola, Ecuador, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Republic of the Congo, Saudi Arabia, the United Arab Emirates and Venezuela. Indonesia and Qatar's membership has lapsed.
The Opec+ group, sometimes known as "Vienna Group", adds 10 non-member nations, including Kazakhstan, Mexico and Russia. Between them these nations supply 55% of oil production and hold 90% of the planet's oil reserves.
According to the Australian Institute of Petroleum, the price of petrol for the week ending 9 October averaged 182.5c a litre nationally. The highest average was in Adelaide at 186.9c a litre, with the lowest in Darwin at 173.6 cents a litre. Prices averaged 183.2c a litre in Sydney and 182.9c a litre in Melbourne.
Dr Ian Jeffries from the Royal Automobile Club of Queensland said the price of petrol in most capital cities follows a month-long cycle and is currently in a “cheap phase” that will begin to lift over the next few weeks.
“That’s when we’ll start to see the effect of the fuel excise increase,” Jeffries said. “In Brisbane we’d expect prices to jump to $2.10 and that includes the return of the fuel excise.”
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Jeffries said it was difficult to predict what exactly was going to happen to the price of fuel over the medium to long term as there were “several factors pulling and pushing” on the global oil market that created significant uncertainty.
Governments around the world, primarily the US, are currently releasing stocks from strategic oil reserves in an attempt to push down prices and tame inflation, but Opec cuts will work against that.
Joaquin Vespignani, an associate professor of the Tasmanian School of Business and Economics, said Opec was “trying to squeeze the market for its last big profit”.
“They know the market is moving away from oil and that’s why they’re going to cut production to keep prices high for as long as they can, basically,” Vespignani said.
“There is a tension between short-term gains and long-term pain. They want to squeeze for more profits, but if the price is high the transition to renewables will be faster.”
He added there was “common agreement” among economists that cutting the fuel excise was “a very bad policy” as it temporarily created a false perception and blunted the growing demand for alternatives such as electric vehicles.
It is expected this demand will grow as prices rise, though Vespignani said Australia was being held back by a lack of policy and planning to help facilitate the transition.
Despite a sharp increase in the number of electric vehicles sold in Australia as of September, electric vehicles only make up 3.39% of all new car sales.
