Fuel suppliers and the Albanese government are bracing for a fresh wave of panic buying before the end of the month, as motorists scramble to buy cheaper petrol and diesel before a 32¢-a-litre discount ends.
On Saturday, Energy Minister Chris Bowen played down speculation that the fuel excise cut would be extended, saying it had only ever been intended to run for three months and would only be continued due to unforeseen circumstances.
“It was always intended to be temporary,” Bowen said. “The prime minister and treasurer have been very clear. We’ll always examine the latest information, the latest situation, but our intention has been for it to come off at the end of the month, and that remains the plan.”
While service stations are currently fully stocked, government and industry are preparing for another surge in demand by diverting extra petrol and diesel into the supply chain and away from the national fuel stockpile, which is at record levels after a successful federal support program to boost imports.
The fuel excise cut began in April after fuel prices hit record highs following Iran’s closure of the Strait of Hormuz on February 28, which choked off about 15 per cent of global oil supply and spurred Australia’s initial round of panic buying.
As motorists feared imports to Australia would stop, queues snaked out of service stations around the country, and up to 600 of the stations were without at least one type of fuel.
Excise volumes – a key indicator of how much fuel has been sold in the nation as it is charged per litre – surged to a six-year high.
The panic buying caught industry and government unprepared.
The widespread station outages in March were not caused by a shortage of fuel, but by bottlenecks in the supply chain as many motorists and industries such as mining and agriculture filled up everything from jerry cans to huge storage vats in the Pilbara and Hunter Valley.
This spike in demand outstripped the supply chain’s capacity, meaning there were not enough transfer stations, tankers or trucks to get the fuel to the locations that needed it.
Malcolm Roberts, chief executive of the Australian Institute of Petroleum, which represents fuel companies, said the industry was preparing for the end of the fuel excise discount by the end of this month.
The institute does not take a position on the government’s tax decisions. Roberts said the country was as well prepared as it could be for the spike in demand.
“We have a huge volume of fuel in storage, but we have to be prepared for sales to spike in the days before the return to the full excise rate,” he said.
“We saw a sharp surge in sales at the outset of the Iran conflict, which hammered distributors – we don’t wish to see a replay.”
Bowen announced earlier this month that the government had extended a temporary 20 per cent reduction in the volumes of fuel private companies must contribute to the national stockpile.
This move was first announced in March to boost the volume of petrol and diesel in the supply chain, rather than sending it to storage vats, to enable companies to respond as quickly as possible to any shortages caused by panic buying.
Bowen said on Saturday that the national fuel stockpile – which can be accessed to fill shortages in supply coming into the country or to plug gaps in local supply chains – had reached record highs.
There are 45 days’ worth of average national petrol use in storage, 39 of diesel and 32 of jet fuel.
Australia imports more than 90 per cent of its fuel and there are 54 supply ships on their way.
“We did see a massive spike in demand early in this crisis with a doubling of demand, which did inevitably lead … to shortages,” Bowen said.
“We’ll continue to closely work with industry to ensure that we, and together with states, that there is as much fuel being distributed as needed.”
The 32¢-a-litre price cut represents a halving of fuel excise, a reduction of about 26¢ as well as 6¢ of GST. It has come at a cost of $2.55 billion in forgone revenue and was delivered in response to record-high prices in March, when average petrol prices topped $2.50 for unleaded petrol in Sydney and Melbourne and $3 for diesel.
Unleaded petrol is averaging about $1.60 a litre in Sydney and Melbourne, which would rise towards $2 without the excise cut.
Ampol chief executive Matthew Halliday said the longer the conflict went on, the higher the risk of further fuel price rises.
Energy executives and the Albanese government are alarmed about dwindling global fuel inventories that are at worryingly low levels.
Halliday said elevated fuel prices were forcing people to buy less fuel in many parts of the world, which had been helping ease the overall supply and demand balance.
A key price rise risk factor is the beginning of the summer driving season in the United States, which could boost demand and strain remaining inventories.
“That starts to put more and more pressure on stock levels, which are already relatively low,” Halliday said. “If [the conflict] is not resolved as we move through the third quarter, that will put more pressure on international pricing.”
Roberts said oil producers in the Americas in particular had scrambled to boost their production to partially fill the gap, while poorer countries were cutting their fuel use as high prices reduced demand.
However, despite the increased oil production in some areas, and reduced use in others, he said the ongoing closure of the Strait of Hormuz would put upward pressure on fuel prices in Australia.
“Since February, world oil supply has contracted by more than 1 billion barrels,” Roberts said.
“This contraction has meant much higher fuel prices and demand destruction in price-sensitive industries.
“Today, the market is being sustained by an unprecedented release of strategic reserves and an export surge from countries such as the US, Canada and Brazil.
“The longer the strait is closed, the more reliant the world will be on continuing release of reserves and a sustained lift in exports from key countries. If supply contracts further, you would expect to see prices rise again.”
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Mike Foley is the climate and energy correspondent for The Age and The Sydney Morning Herald.Connect via email.
Nick Toscano is a business reporter for The Age and Sydney Morning Herald.Connect via X or email.