360 Degree Wrap up on Oil – Supply, Demand, Politics & Policies

  • May 21, 2020 AEST
  • Team Kalkine

Falling oil prices, stalling fuel demand in the domestic market and a narrowed profit margin of shuttered refineries explains the current operating scenario of oil and gas companies in Australia.
Amid such austere market situation coupled with other political parties preferring renewable energy, the announcement of Keith Pitt, Minister for Resources, Water and Northern Australia, comes as a market shocker. In an event organized by Queensland Resources Council, Mr. Pitt has pressed for more investment in the Australian oil and gas sector.

The announcement is completely aligned with the government’s priority for strengthening the energy sector and accordingly meeting economic goals, domestic energy supply, and reducing greenhouse emissions.

Let’s study in detail how the oil industry is faring with respect to supply & demand, politics & policies.
Australia has been experiencing a continuous decline in domestic production of oil, making Australia largely dependent on imported oil, thus questioning the oil security of the nation.

Australia currently imports ~ 90% of its refined fuel demand and has a severe oil storage issue. According to the Australian government, at the end of February, the country had eighty-one days’ oil supplies, including twenty-five days of stocks in overseas ports and in transfer to the country.
This actually puts Australia in a very vulnerable position for meeting domestic fuel demand, in case the effect of the Pandemic intensifies, and the domestic reserves get used up.

To address this issue, on March 10, the Australian government bought $94 million worth crude oil to boost the national fuel reserve, leveraging the low oil prices. The US deal also got access to store in the US Strategic Petroleum Reserve (SPR) for an initial period of 10 years. This measure ensured Australia meets its 90-day stockpiling commitment to IEA.

However, the measure alone doesn’t solve the problem of meeting domestic demand as the reserved fuel located in the US will take weeks to reach Australia if need arises.
To further solidify its domestic fuel reserve, the federal government announced a fuel security package on 1st May which includes the US deal of establishing oil reserve for domestic fuel security. In the package, the government also emphasized on creating local storage options by collaborating with the private sector and considering a temporary change to fuel standards.

#OilPrice #Politics #Kalkine


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