Retail diesel prices

IBISWorld forecasts average retail diesel prices to rise by 2.2% in 2023-24, to 212.2 cents per litre. Since the conflict between Russia and Ukraine began, international prices have significantly increased. Europe's energy crises, caused partly by EU sanctions on Russian refined oil products, have caused shortfalls in global diesel barrels. With many other countries imposing sanctions against Russia, a domino effect has occurred, rocketing diesel prices. Recovering global oil consumption as COVID-19 restrictions were lifted globally has further propelled prices. In March 2022 the Federal Government implemented a a temporary six-month excise fuel reduction to try to ease cost of living pressures, which limited growth in diesel prices. These effects were most felt over the two years through 2022-23, with prices starting to drop in the second half of 2023-24 as supply conditions began to normalise, although not enough to cause an overall decline in average prices over the course of the financial year.

Domestic diesel prices are driven mainly by fluctuations in global prices, particularly movements in the Singapore benchmark price. According to the ACCC, price changes in the Singapore benchmark take approximately two weeks to work their way through the Australian supply chain. Diesel prices are also influenced by fluctuations in the world price of crude oil, refining costs and taxes. According to the AIP, approximately 60% of diesel sold in Australia is imported from overseas, primarily from Japan, South Korea and Singapore. As crude oil is generally priced in US dollars, the value of the Australian dollar relative to the US dollar can also affect retail diesel prices. Likewise, diesel prices are influenced by supply and demand conditions and excise levels in the domestic market. Before the temporary six-month reduction, excise on diesel stood at 44.2 cents per litre. The excise on fuel is indexed twice annually in February and August, in line with the consumer price index. According to the AIP, around 25% of diesel is sold to retail customers, with the remainder primarily sold in bulk to commercial customers. Key users of diesel include road freight operators, agricultural producers and operators in the mining sector.

The world price of crude oil is highly correlated with fuel prices in international markets and has displayed volatility in recent years. Pent-up demand caused oil prices to rise over the three years through 2018-19, lifting domestic diesel prices over the same period. Global oil prices then fell sharply as demand conditions deteriorated following the outbreak of COVID-19. For this reason, retail diesel prices declined over the two years through 2020-21, however recent supply conditions have offset these declines early in the period. Overall, IBISWorld anticipates average retail diesel prices to rise at a compound annual rate of 7.0% over the five years through 2023-24.