Petrol pump prices continue to increase, $3 a litre could be new normal, says AA

Petrol prices are returning towards the levels that pushed the Government to act in March and $4 a litre is still on the table this year, says the Automobile Association.

Under pressure to act after 91-octane petrol rose above $3 a litre following Russia’s invasion of Ukraine, the Government temporarily slashed fuel excise duties by 25c a litre in March, along with reducing the cost of public transport. Road user charges were also reduced for diesel.

Petrol stations immediately cut their prices when the reduction, approximately 29c a litre after accounting for GST, took effect on March 14.

Yesterday afternoon, a litre of unleaded 91-octane petrol cost an average of $2.78, according to fuel app Gaspy, a 15c increase over the past 28 days.

Unleaded 95 had risen 19c over that time to $2.96, while unleaded 98 was at $3.13, up 22c. Diesel was up 27c to $2.52.

‘‘I don’t expect the price of fuel to go down any time soon,’’ said AA principal policy adviser Terry Collins.

‘‘I see this $3 mark being here for quite some time now. I think it could almost be the new normal.’’

The Government will face a problem when it reverses the changes, expected to be mid-June.

At that point, petrol would either be above $3 a litre or it would be pushed past that mark by the resumption of full fuel excise. ‘‘When that policy came out, there was a lot of volatility,’’ Collins said. ‘‘Now we know there are going to be some real shortages of supply and how popular politically will it be to put the price back up again?

‘‘They put it on when we were getting premium fuel over the $3 mark and we are getting very close to the $3 mark with 91.’’

The price of motoring had risen 20% in the past 18 months, with petrol prices the biggest driver, and Collins expected another significant increase over the coming 18 months. ‘‘If you are thinking about replacing your vehicle, do it now because it is never going to get any cheaper,’’ he said. In addition to the higher price of fuel, making energyefficient vehicles cheaper to run, and policies making low-emitting cars more attractive to buy, Russia’s invasion of Ukraine was resulting in shortages of other materials needed by carmakers, including neon gas which is used to create silicon chips.

‘‘This is not necessarily a blip, it is going to be around for a while. If you have got the ability,

or you are thinking about changing your vehicles, look for that more efficient, safer vehicle. Now is the best time to start looking.’’

On top of sanctions against Russia, and damage to fuel infrastructure as part of the war between Russia and Ukraine, any spare capacity would dry up if the European Union introduced a ban on Russian oil imports. That followed a ban on Russian coal and discussions over a ban on importing Russian gas.

‘‘A lot of Europe relies upon Russian gas and coal. Well if you can’t get gas and coal, you have got to use oil, so it is a perfect storm for price increases currently,’’ Collins said. At the same time, demand was set to begin rising worldwide, when Covid lockdowns ended in China and with airline travel increasing.

The rising price of petrol and diesel was adding to inflationary pressures, pushing up the cost of farm production, transport, and down the line to consumers, he said. ‘‘We are just in autumn, we have come through the horticultural season, the wine season, all of those things require diesel for the harvesters, so they will be paying a lot. Then of course everything that goes into the factory and everything that comes out of the factory requires a truck and they run on diesel.

‘‘So all those prices are flowing through and are having a marked inflationary effect.’’

Brent crude, used as an international benchmark, was trading above US$100 a barrel and Collins expected it to remain above that mark for the rest of the year.

It was hard to know if petrol would hit $4 a litre this year but it was possible. ‘‘I wouldn’t bet it wouldn’t happen . . . because it really does come down to how severely these sanctions occur against the Russians and how long the conflict does last, and the extent [Russia and Ukraine] want to do mutually assured destruction of each other’s infrastructure around petroleum and fuel.’’

Higher fuel prices would make some people cut back on their vehicle use, for example walking to the dairy instead of driving, and combining trips together where possible. But some people would not have a choice.

‘‘It is the more marginalised, low income people that have not got good access to public transport because of the way it is arranged that have to use vehicles. They are the ones that are probably going to get hardest hit – they are like the factory workers and the cleaners who have multiple jobs in the household and they need multiple cars because they are going different places at different times.

‘‘They will find it hard.’’