Remember summer? Long, balmy evenings, sand and surf, that feeling of thong rubber between your toes.

And petrol prices dropping below $1 a litre. It was glorious. But, oh! So brief.

No sooner had you blinked than you were back in the office, it was raining, and filling up cost $1.40 a litre.

What happened? Every day we hear more about the global oil market taking an express elevator to the basement.

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The Singapore petrol wholesale price is also tumbling. (It is actually more relevant for Australia than the West Texas Intermediate price that major traders like to focus on.)

The Saudi Arabians are pumping oil like there’s no tomorrow, putting OPEC — the global oil cartel — to the sword.

At the same time, China’s thirst for raw materials is well and truly sated. It may even have over-consumed. In fact there’s a distinct chance China is about to vomit everywhere, and people are clearing the area in preparation for a messy economic explosion.

All of this serves to push down global oil prices and squeeze margins.

Australian oil companies are being punished in the markets, and small American shale oil drillers have packed up and gone home.

 

 

But there’s scant sign of that when you duck into Caltex, hopefully clutching a docket for 4 cents off a litre.

Our petrol prices have eased by only about four cents a litre in the last three months. 

The big problem is our currency. After years of being stubbornly, immovably high, it is now the most flexible nymph, blown hither and thither by the winds of global markets.

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A lower dollar is wonderful where we can do import competition. Our farmers will love it. They can produce more, employ more people and make more profits. Likewise local retailers and local manufacturers.

But Australia imports 91% of its fuel, according to a 2014 report by the NRMA. Even the share we refine here from imported oil is shrinking as we import more refined product.

 

 

Source: NRMA 2014

Shell had a refinery in Geelong it sold to a Swiss oil trading concern in 2014. BP closed its refinery in Queensland this year.

Incidentally this has been raised as a national security issue. In 2013, Air Vice-Marshal John Blackburn said:

“In essence, we have adopted a ‘she’ll be 
right’ approach to fuel security, relying on the historical performance of global oil and fuel markets to provide in all cases. Unfortunately, as a result of our limited and decreasing refining capacity, small stockholdings and long supply chains, our society is at significant risk if any of the assumptions contained in the vulnerability assessments made to date
prove false.”

Local fuel supply may make us more secure in a war. It wouldn’t solve the price issue, though. They’d sell it on global markets. Not unless we compelled local producers to set petrol aside to sell here. (That’s not a good policy proposal. You’d be better off cutting fuel taxes.)

Fuel taxes are a big part of the price of fuel, of course. And following a deal between Labor and the government, they’re going up. Part of the price we pay for dealing with the federal deficit.

The fuel excise is set at 38.6 cents a litre. It is not a percentage tax, so if fuel prices fall, the share of tax in the price rises.

Luckily for motorists, fuel-price futures are falling. So long as the dollar holds up, there may be some relief by next summer.