Australians seeking ultra-cheap petrol across the country following the stunning crash in crude oil prices are being cautioned not to get their hopes up too high as the fuel industry faces unprecedented pressure from the spreading coronavirus.
As global benchmark oil prices hover around two-decade lows of less than $US30 a barrel and briefly sank below $0 in America, motoring groups and some economists have predicted Australians could soon be paying vastly less at the pumps – suggesting prices could fall to less than $1 a litre at sites everywhere.
But across the board price falls could be limited as the nation’s fuel industry suffers from travel lockdowns sapping demand, smashing profit margins and threatening the viability of Australia’s remaining fuel refineries.
Fuel industry insiders have also pointed out that petrol station prices were driven by a number of factors other than crude costs, including volume turnover at each site, supply-and-demand pressures in particular regions, the cost of refining and transporting fuels and the government fuel excise of 41¢ a litre, while still having to turn a profit.
“These costs don’t just go away because the oil prices have fallen off,” one said.
The head of Australia’s largest fuel supplier, Caltex, told The Age and Sydney Morning Herald while petrol prices have been softening over recent weeks the sector’s ability to cut prices much further could be kept in check by the immense “demand destruction” it was facing.
Caltex chief executive Matthew Halliday said petrol demand had fallen by up to 50 per cent and jet fuel demand by up to 90 per cent in the wake of the coronavirus pandemic causing borders to close, airlines to slash flights and people to stay at home.
“As the oil prices have come down we have seen that flow through into lower fuel prices … quite markedly across the market,” Mr Halliday said.
“But clearly we are in a very challenging period at the moment for the industry. Prices have come down, but volume impacts on the whole industry are challenging right at the moment.”
Caltex accounts released on Monday showed its already-strained profit margins at the Lytton refinery in Brisbane have been cut in half from $US8.67 a barrel in March 2019 to $US4.62 last month. Caltex has decided to temporarily shut the Brisbane refinery from next month for an extended maintenance closure and said it would only reopen it once refining margin conditions had improved.
Viva Energy, which operates thousands of Shell-branded petrol stations across Australia, is also experiencing margin pressure and is reviewing whether to proceed with a planned $100 million maintenance program needed to prolong the life of its Geelong oil refinery.
The crash in oil prices was sparked by the onset of a price war between Saudi Arabia and Russia, which brought greater supply into a market already suffering from vanishing demand. While the US benchmark West Texas Intermediate’s steep price drop to about $US30 below zero is a quirk of the futures market as traders prepare for the expiry of contracts that will deliver oil in May, the extraordinary fall highlights the pressures of weak demand and chronic oversupply overwhelming the world’s oil storage infrastructure.
Extracted from WA Today