Fuel Price Hits A 12-Year Low, Here's Why Petrol Is So Cheap Right Now

25/02/2016 2:04 PM AEDT | Updated March 24, 2016 09:12
Matt Bedford / Fairfax media

Ladies and gentlemen, start your engines and get down to the servo, because the average fuel price in Australia has hit a 12-year low, and prices like this can't last forever.

The last time petrol was this cheap, Shannon Noll's 'What About Me' was the top song and a Tassie girl called Mary Donaldson was preparing to marry Frederick, Crown Prince of Denmark.

Figures released by the NRMA on Thursday confirmed prices for regular unleaded petrol had fallen in line with wholesale fuel prices at an average of 97 cents per litre with a low of 91 cents, while E10 and diesel were down to a low of 88.9 cents.

NRMA's fuel price analysis

Regular Average: 97.0 Low: 91.4 High: 129.4

E10 Average: 94.8 Low: 88.9 High: 119.9

Premium 95 Average: 108.4 Low: 109.9 High: 138.9

Premium 98 Average: 114.7 Low: 105.9 High: 142.9

Diesel Average: 107.8 Low: 88.9 High: 127.8

LPG Average: 59.8 Low: 54.5 High: 69.9

The question is: why so low?

Petrol prices rely on the cost of its main component crude oil, which -- along with pirate rum -- is priced per barrel.

The Australian Institute of Petroleum, which has member companies BP, Viva Energy Australia, Mobil and Caltex, has put together this chart of the declining cost of crude oil prices and the Singapore petrol price, which Australians rely on.

crude oil singapore cost

This is caused by simple supply and demand. As it stands, Saudi Arabia has flooded the market with oil, which has driven the price down, and oil minister Ali Al-Naimi reportedly said there wouldn't be any reduction in production. Meanwhile economic sanctions in Iran were recently lifted, allowing its oil to be sold more readily.

Then there's the U.S., which, instead of relying on OPEC oil, has increasingly been mining its own since 2011.

As for demand, China's economic slowdown means one of the world's largest consumers was not buying at the levels it had previously.

UNSW Business School Director of the Institute of Global Finance Fariborz Moshirian said there was nothing to suggest these factors would change any time soon.

"Generally, the supply of oil is not going to abate," Moshirian told HuffPost Australia.

"Demand is down due to slow economic growth in China and other emerging countries. It is possible that the oil price remains at $30 to $35 for the foreseeable future."

Moshirian said a deeper analysis of oil prices revealed immense political forces.

"Oil is a major political force," Moshirian said.

"There's a suggestion that Saudi Arabia is driving down the price of oil so shale oil exploration in the U.S. is not successful."

University of Western Australia professor of finance Richard Heaney said the current price reduction could be a reflection of an unraveling of high-cost oil markets.

"There's a massive supply but as China pulls back on demand, and other emerging economies are requiring less oil, the price is going to decline considerably," Heaney said.

"I think we're going to see a situation where the high-cost crude oil producers aren't going to survive.

"The whole market's been seriously screwed up and I think there could be some big players burnt."

Meanwhile at Aussie servos, NRMA President Kyle Loades said retail petrol prices were determined by price movements in the refined product, known as Mogas 95.

“Changes in Mogas prices tend to take about seven to 10 working days to be passed on to Australian motorists,” Loades said.

“The timing of these changes is also influenced by the price cycle in the major capital cities. In regional centres and towns, the impact of Mogas price movements is dependent on the timing of petrol purchases and the delivery to the service stations.”

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