Australia’s oil price hits three-month low on US-Iran peace hopes

Australia’s regional oil price has tumbled 12 per cent in a week, paving the way for deeper cuts at service stations if a US-Iran peace deal sticks and offering hopes of a buffer for motorists as the federal government’s 32¢-a-litre fuel discount ends.

Tapis crude, the primary oil benchmark used in the Asia-Pacific, has fallen to $US84 ($119) a barrel – its lowest since the second week of March – following breakthroughs towards a preliminary peace deal in Iran. Markets are anticipating an interim agreement will reopen the economically critical Strait of Hormuz and help restart regular oil shipments out of the volatile region.

The downward trend has already extended to benchmark prices of refined products in the Asia-Pacific, which directly influence fuel costs in Australia. New figures show the region’s primary petrol benchmark, known as Mogas 95, and the diesel benchmark Gasoil both recorded sharp weekly declines of 12 per cent and 17 per cent, respectively.

If the diplomatic breakthrough holds, cuts to local wholesale prices are expected to follow, and could reach Australian petrol pumps within as little as seven to 10 days.

Experts and analysts say the relief may arrive just in time to partly offset the end of the federal government’s fuel-excise discounts on June 30, which would otherwise send prices up 32¢ overnight.

“If the strait reopens and stays open, we are hoping that these expected further falls will cushion some of the impact of the excise being restored,” said Peter Khoury, a spokesman for the National Roads and Motorists Association.

“We won’t get back to where prices were before the war, but hopefully in the next two weeks the trends will continue, and we will see falls at the bowser.”

‘We won’t get back to where prices were before the war, but hopefully in the next two weeks the trends will continue, and we will see falls at the bowser.’

Peter Khoury, National Roads and Motorists Association

The Albanese government introduced the 32¢-a-litre discount on petrol and diesel in April to shield consumers from prices that had soared above $2.50 a litre for regular unleaded and $3 a litre for diesel. The discount was made up of a halving of the fuel excise – about 26¢ – as well as 6¢ of GST. It has cost the government $2.55 billion in forgone revenue.

Treasurer Jim Chalmers and Energy Minister Chris Bowen have said the government is set to end the discount at the end of this month. But Prime Minister Anthony Albanese on Tuesday declined to confirm the plan. There is a risk that confirming a deadline for fuel price increases could induce panic-buying as motorists stock up on cheap petrol and diesel.

“We’ll give consideration to those matters. The peace deal in the Middle East, we welcome … but the signing of the agreement will take place in Switzerland on Friday,” Albanese said. “We want to see this hold.”

The interim agreement is intended to reopen the Strait of Hormuz, a trade route off Iran’s southern coast that usually carries up to 20 per cent of the world’s oil supply but has been effectively blocked since the Iran war began on February 28.

US President Donald Trump has insisted the waterway would be clear again on Friday. “We have a lot of lanes right now already,” he said.

A credible reopening of the strait would be one of the “most important developments for the global economy at this juncture”, said Claudio Galimberti, chief economist at research firm Rystad Energy.

“Every barrel previously constrained through the strait represents inflationary pressure that would begin to unwind, at least at the margin,” he said.

However, the lack of detail has kept energy traders and analysts cautious.

Despite the oil price pushing lower, key details remained unresolved, Galimberti said. “Markets have seen this playbook before, with an initial rally on the headline followed by a fade as implementation risk re-emerges, and there is little to suggest that pattern has been broken,” he said.

There are also concerns that the damage to global energy supplies and shipping caused by months-long conflict has been so severe that oil and fuel prices will remain above pre-war levels for some time, even if the strait reopened immediately.

Energy companies still need to repair damaged oil assets, restart shut-in production wells, obtain shipping insurance for the risk of traversing a recent war zone, arrange payment of possible maritime fees to Iran, and replenish global fuel stockpiles that had been drawn down.

Some shipowners have indicated they will not resume transit through the strait for weeks until they are confident that the US-Iran deal is “material”.

“While we anticipate an increase in traffic as ships look to exit after 100-plus days on the water in the Gulf, we think it will take months to reach anything close to February 27 levels,” said Helima Croft, an energy analyst at RBC Capital Markets.

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