If you have been noticing a significant reduction in how much you are paying at the petrol pumps – still not great but thankfully not at “How much is my kidney worth” levels, you can rest easy for a wee bit more.

While it wasn’t too long ago that we were staring at prices of up to and beyond $2 per litre, it is now averaging about $1.65-$1.70 in most Australian capital cities.

Unless you’re in Tasmania, where the average is about $1.91 there. Sorry folks.

The reason for this bit of relief on our wallets is due to crude oil prices coming down a fair bit from their heights around US$115/bbl to US$120/bbl earlier this year to below the key US$100/bbl mark on concerns about a recession.

Rather predictably, this little bit of joy might not last.

Thursday’s agreement by OPEC+ to increase oil production by 100,000 barrels per day is entirely insufficient to address oil market tightness and seen as a sign that the oil cartel might not be able to boost production much further.

Speculation is also rife that OPEC+ will ignore US President Joe Biden’s request to boost supply at next week’s production meeting (or perhaps hiding their inability to actually increase output) while front-month Brent futures are selling at a rising premium to the deferred months – a sorry state of affairs known as backwardation that is a sign of tightening supply.

Adding further support to concerns that supplies are becoming tighter comes from the depletion of US distillate fuel oil inventories to critically low levels.

CNBC quoted Goldman Sachs analyst Michele Della Vigna as saying that there is no near-term fix for the world’s energy problems and that most of the spare capacity is gone.

“Unfortunately, in the near-term, the market is likely to be tight, and there is no quick easy solution to the energy affordability problem,” Vigna added.

Painful pump prices won’t last, maybe

Still, even if crude oil prices do go up significantly, it will take a couple of weeks before it filters down to consumers.

There’s also a good chance that any return to oil prices to its previous range is likely to be short-lived (relatively speaking) as the resulting inflation and high prices at the pumps will more than likely destroy consumer appetite for petrol, which will lead to a drop in demand and prices, at least until demand builds up again.

This cycle will likely last until sufficient new supplies are secured and brought online, which is never a quick process to begin with, or alternative to petrol and diesel such as battery and hydrogen fuel cell powered vehicles become more prevalent.

However, there is another source of pain coming for consumers with the fuel excise cut, which was introduced by the Morrison Government back at the end of March due to come to an end before September closes.

With Labor already ruling out extending the excise cut, consumers will get slugged with an additional 22.1c per litre from September 29 when the full excise returns to haunt us.

The best case will see prices stay around current levels, which will cushion the blow, the worse will see crude oil climb back to the heights (or higher) it reached earlier this year – an outcome that will cause no end of wailing and gnashing of teeth.

Unless you’re in Tasmania that is, in which case high prices are pretty guaranteed either way.

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