Fuel Prices Heading for Record Highs as Oil Nears $120

Australian motorists are bracing for another round of pain at the bowser, with crude oil prices edging toward $120 US a barrel and fears growing that petrol costs could smash through previous records.

After settling in the high $80s and low $90s for much of the past year, crude has resumed its climb as the Middle East conflict persists and defies earlier expectations of a swift resolution. Independent economist Saul Eslake told 4BC Brisbane the situation is unlikely to improve quickly.

"I think the world and Australia is probably going to have to come to terms with the fact that petrol prices are going to be higher for quite a long time," Eslake said.

He pointed to a factor many Australians are not tracking: the so-called crack spread — the gap between the raw crude price and the market price for refined products such as petrol, diesel and jet fuel. Unlike the crude price, which briefly dipped below $80 a barrel when a ceasefire appeared possible, the crack spread has stayed elevated due to a global shortage of refining capacity.

"That's not going to go away," Eslake said.

Reports have emerged that the federal government is weighing another temporary cut to the fuel excise to ease cost-of-living pressure. The government previously halved the excise when the Middle East conflict first flared, budgeting the move — combined with a temporary suspension of the heavy vehicle road user charge — at $4.25 billion over roughly three months.

Scaling that relief to a full year would cost more than $16 billion, a figure Eslake described as a serious hit to the budget deficit. More troubling, he argued, is the timing: cutting the excise would pump money back into household spending precisely when the Reserve Bank is trying to cool demand to keep inflation in check.

"What the government giveeth by way of tax cuts or cash handouts in the name of relieving cost-of-living pressures, the Reserve Bank will take away in the form of higher interest rates," he said.

Eslake was also pointed about broader fiscal discipline, noting the problem extends beyond Canberra. Queensland's credit rating was downgraded last Friday, a consequence he attributed largely to the previous Labor government's spending trajectory — but he noted the current administration has done little to reverse course, with the most recent Queensland budget adding $4.5 billion in new spending over four years to 2028–29.

"This is a kind of bipartisan policy failing of governments to keep spending money and not find ways of paying for it," he said.

The broader concern for businesses and consumers alike is the flow-on effect of higher fuel costs through the trucking network that underpins supply chains across the country. A sustained rise in petrol and diesel prices feeds directly into the price of groceries, building materials and virtually every other physical good.

Australia's fuel taxes remain among the lowest in the developed world outside the United States and Canada — drivers in much of Europe pay the equivalent of around three euros per litre at the pump, largely because of higher tax rates. Even so, Eslake cautioned that a short-term excise cut, if the underlying price pressures are structural rather than temporary, is the wrong tool for the job.