Australia's diesel reserves have slipped to a 31-day cover, even as the government moves to ease supply chain pressures. The latest official data shows average diesel prices across the nation's five largest cities reached A$2.679 per litre on September 16, a sharp weekly increase of 14.2 cents. This comes as the federal government extended a temporary concession on emergency fuel stockholding requirements, a move aimed at improving fuel distribution during the upcoming grain harvest and summer travel season.
Climate Change and Energy Minister Chris Bowen announced the extension on Saturday, September 19, giving importers and refiners until January 31, 2027, to hold 20% less than their normal minimum petrol and diesel reserves. In return, companies must direct more fuel into the domestic market and prioritize regional supply. This measure, however, is a supply-chain adjustment rather than a price subsidy, and it does little to shield consumers from the high cost of replacing every litre sold.
Supply Glut vs. Price Surge
While the volume of fuel in the pipeline appears reassuring, the price picture is less comforting. The minister reported that Australia has 41 days of petrol (unchanged), 31 days of diesel (down one day), and 32 days of jet fuel (up two days). Approximately 40 ships are en route to Australia, and 3.6 billion litres of fuel have been contracted for delivery over the next four weeks, 300 million litres more than the previous update. These figures suggest adequate physical supply, but the cost of that supply is climbing steeply.
According to the Australian Competition and Consumer Commission (ACCC), regular unleaded petrol averaged 224.2 cents a litre in the five largest cities on September 16, up 14.3 cents in a week. Regional prices were even higher, with diesel at 270.9 cents and petrol at 228.6 cents. The root cause lies upstream: the international Gasoil 10 ppm benchmark, which underpins Australian diesel prices, surged 10% to US$185 a barrel in the week through September 16, while Dated Brent crude averaged US$132. Refining margins remain elevated due to disruptions in Middle Eastern crude and refined-product supply, affecting a fuel that is critical for mining, agriculture, freight, and remote electricity generation.
Excise Duty and Government Response
The federal fuel excise has reverted to 53.7 cents a litre after a temporary cut was phased out on August 3. Minister Bowen did not announce another reduction on Saturday, stating that the government would monitor prices and noting planned talks in Saudi Arabia, where damage to a pipeline used to reroute oil has added another constraint. The government's next stock update is scheduled for next Saturday, and the ACCC will continue to publish weekly price data.
Refiners Benefit, Retailers Squeezed
For investors, high fuel prices create a mixed trading environment. Integrated suppliers like Ampol Limited (ASX:ALD) and Viva Energy Group (ASX:VEA) are seeing strong refining profits, but they also face headwinds from rising landed costs and delayed pump price adjustments.
Ampol's Lytton refinery posted a replacement-cost operating profit before interest and tax of A$533.4 million in the first half, a dramatic increase from A$1.1 million a year earlier, with the refiner margin reaching US$28.26 a barrel. However, the company also warned that higher landed costs have tightened retail fuel margins in Australia and New Zealand, as pump prices adjust with a lag. Its August 24 results highlight this split.
Similarly, Viva Energy reported first-half replacement-cost EBITDA of A$774.4 million, up from A$304.9 million, with its Geelong refining margin rising to US$21.10 a barrel from US$8.20. The company cautioned that favorable commercial supply arrangements would moderate in the second half, even as refining margins are expected to remain strong, according to its August 25 results.
Implications for the Market
The stockholding relaxation has a dual effect on these companies. On one hand, releasing inventory can improve the physical flow of fuel and prevent regional shortages. On the other, it reduces the buffer within the regulated system at a time when replacement cargoes are expensive. Normal obligations cover importers and refiners responsible for 98% of Australian diesel supply, with baseline requirements of 32 days for importers and 20 days for refiners, before temporary reductions.
The strongest argument against a bearish cost outlook is the delivery pipeline itself: contracted cargoes and healthy tanks make rationing less likely, while elevated refining spreads can support Ampol and Viva Energy earnings. However, the risk remains that an intact supply chain merely transmits higher global prices into freight, farm operations, and consumer budgets. The next data points—diesel cover, incoming cargoes, and the Gasoil-Brent spread—will offer clearer signals on the earnings trade than any single service station price.
