Diesel price surge hits Australian farmers and businesses as Middle East conflict escalates
The ongoing Middle East conflict is driving up the price of diesel and other essential commodities, putting pressure on Australian farmers and businesses. The surge in crude oil prices is having a ripple effect on the entire supply chain, with the profit margin per barrel for refiners increasing significantly.
A perfect storm of global events is brewing for Australian farmers and businesses, as the ongoing Middle East conflict drives up the price of diesel and other essential commodities. The surge in crude oil prices, now over $US105 per barrel, is having a ripple effect on the entire supply chain.
Grain farmer Adrian Roles, from regional New South Wales, is feeling the pinch. "So it's costing us, on the bottom line, about 40 per cent of our profitability," he said. The price of diesel, pesticides, herbicides, and even shipping to his property just outside Wagga Wagga have all increased, putting pressure on his wheat and sheep farming operation.
The global scramble for diesel is likely to continue, according to Commonwealth Bank head of commodities Vivek Dhar. "The market is screaming for that diesel right now," Mr Dhar said. The closure of the Strait of Hormuz, a critical waterway for oil exports, has left the world searching for alternative supplies.
Refiners are capitalizing on the crisis, with the profit margin per barrel, known as the "crack spread", increasing from around $24 to $69. Australia is particularly vulnerable to these price swings, importing around 80 to 90 per cent of its diesel.
Mr Roles, also chair of the New South Wales Farmers Grain Committee, said "it's not like we can pass on these additional costs". "We sell into a global commodity market, so we're price takers as well," he said. "We're basically taking the international price."
The rising cost of fuel is not limited to farmers. Container Transport Alliance Australia's director Neil Chambers said the increased price of diesel is having a flow-on effect to the broader economy. "The price [of diesel] has risen dramatically, over 50 per cent, and that puts a great strain on cash flow," Mr Chambers said.
Transport businesses are passing on the higher fuel prices to their customers, with some updating their fuel surcharge on a weekly basis. "We haven't got a fuel supply crisis, we have a fuel cost crisis," Mr Chambers said.
The Reserve Bank is closely watching the situation, with chief economist and assistant governor Sarah Hunter warning that the conflict is "the big unknown" in the global economy. "Clearly prices have tracked up [and] just recently that is flowing into the local economy," she said.