Falling oil prices are good news for motorists as tax slug is back

The federal government has reinstated its full fuel excise after six months of cost of living relief, but pump prices may still fall.

Global oil price movements are having a greater impact on petrol prices than this week’s reinstatement of the full government fuel excise.

Crude oil prices have dropped about $US40 a barrel since June and could fall further, economists say, with a “conga line” of factors influencing energy markets.

They say every $US1 move in oil roughly translates to a 1c per litre difference at the petrol pump, where an extra 25c of tax per litre was reinstalled from Thursday as the federal government ended its fuel excise relief.

KPMG chief economist Brendan Rynne said he expected crude oil prices to continue to decline.

“The large spikes we have had in the price of oil have now gone – we are getting some stability back into the oil markets,” he said.

“There’s uncertainty still associated with what’s happening with Russia and Ukraine. My understanding is that Europe going into winter is now largely supply-secured without Russian oil.”

However, if the global geopolitical situation worsened dramatically, such as Vladimir Putin using nuclear weapons, “all bets are off”, Dr Rynne said.

Since early June the price of Brent crude has dropped from $US124 to $US88 a barrel, while West Texas Intermediate has fallen from $US122 to $US81.

“Petrol prices are still notably higher than they were at the end of last year, but they are trending down towards that,” Dr Rynne said.

Crude oil prices have fallen significantly since June. Picture: Frederic Brown/ AFP

“The expectation is that those prices will probably return to a more normal level around the middle of next year, and maybe sooner if the world goes into recession,” he said.

“Oil prices tend to drop dramatically when global demand falls.”

However, the weaker Australian dollar is a headwind. “In the short term the petrol price will be held up because of the exchange rate fall, because we pay in US dollars,” Dr Rynne said.

“The exchange rate has been depreciating at a faster rate than the oil price. There’s conga line of economic factors that all join each other at the hip.”

CommSec senior economist Ryan Felsman said once the fuel containing the full excise started flowing through petrol bowsers, several capital cities should see retail prices near $2.20 a litre.

Mr Felsman said oil prices were fluctuating daily by between 2 and 5 per cent, and the industry’s big focus was next week’s meeting of OPEC oil-producing countries.

“There’s talk that the OPEC countries may look to change their production quotas and try to support the oil price,” he said.

“Part of the reason is their fiscal situations are under pressure.”

OPEC countries supply between 30 and 50 per cent of global oil, while the US is the world’s biggest individual oil producer with a 20 per cent global market share.

“Before the pandemic, oil was in a trading range between $50 and $70 a barrel, Mr Felsman said.

“We just don’t know whether prices will return to those levels, because OPEC has been more aggressive in restraining production,” he said.

Mr Felsman said the decarbonisation of the planet meant this could be “a last hurrah” for high crude oil prices.