Over the last few weeks, falling retail prices of petrol and diesel have given households and businesses some relief. Unfortunately, that relief was temporary. Markets are starting to catch up with the reality of the supply disruption and that means prices will be going sharply up:
⛽ The benchmark Brent Oil price has been trending strongly upward over the last week and is flirting with $110 a barrel this afternoon.
⛽ Even in an optimistic scenario (peace this week and rapid reopening of the Strait of Hormuz) cumulative supply lost will exceed 1.2 billion barrels.
⛽ There has been no progress on peace talks for the last two weeks, and neither side is making the right noises to facilitate a quick resolution.
⛽ The fuel excise cut expires on 30 June, adding another 26.3cpl back onto pump prices
The steady decline in prices over the last couple of weeks has been driven by the ceasefire and the excise cut, not by any improvement in underlying supply. With oil prices back above $108 and progress towards a resolution stalled, the wholesale price relief that drove retail prices down is now reversing. We are looking at petrol well above $2.00/L and diesel well above $3.00/L for an extended period.
However, the bigger concern is physical supply. While Australia has secured fuel shipments through to mid-May, this was the easy part, as we were essentially still buying up barrels that left before the crisis started. As the crisis drags on and barrels of crude become increasingly scarce, countries are having to tap into their reserves to maintain domestic supply. This is a temporary solution, but also a huge problem for Australia as we lack any kind of substantial domestic reserve. If no solution to open the strait is found in the next couple of weeks, rationing moves from a worst-case scenario to a likely necessity (especially for Diesel and Jet Fuel).
If you are running an SME, the last few weeks of falling prices should not have changed your planning assumptions. The crisis is not over and if anything it is getting worse. If your cash flow forecasts are based on current pump prices, they need to be updated now for diesel above $3.00 and petrol above $2.00 through to at least the end of the year.
Businesses also need to remain aware that the FWC fuel cost recovery order is now in effect. While providing protection for transport companies, it does mean that any sharp increase in prices will get passed up the supply chain within two weeks, a much more rapid cost pass through than we would ordinarily expect.
