The Fuel Safety Net Australia Loosened Snaps Back on 30 September

Everyone's watching the number on the price board. Fair enough, with unleaded back above $2.10 in most capitals and diesel nudging $2.55. But there's a second number worth knowing about this month, and it isn't on any sign. It's 762 million litres, and by the end of September the fuel industry has to put it back.

The buffer nobody told you was turned down

Since the middle of March, Australia's fuel importers and its two remaining refineries have been allowed to hold 20 per cent less petrol and diesel in the country than the law normally demands. That law is the Minimum Stockholding Obligation, or MSO, and the temporary relaxation was one of the first levers the federal government pulled when the conflict between the United States, Israel and Iran sent oil markets into a spin in late February.

The logic was simple. Fuel sitting in a tank to satisfy a regulator is fuel that can't be sold. Loosen the rule by a fifth and roughly 762 million litres of petrol and diesel moves from mandatory buffer to available stock. That's the government's own figure, and by my arithmetic it's the better part of a week's national petrol and diesel use.

It was meant to expire in July. On 30 May, Energy Minister Chris Bowen extended it to 30 September, partly to soak up the rush everyone expected when the excise discount ended. Companies using the relief had to lodge written plans showing how they'd keep supplying regional distributors and respond to demand spikes.

That extension runs out in thirteen days. As of this week there's been no announcement of another one.

What the MSO actually is

Let's put this in perspective.

Australia has been a member of the International Energy Agency since the 1970s, and members are supposed to hold 90 days' worth of net fuel imports. We haven't met that obligation since 2012. Through the 2010s, as the refineries at Clyde, Kurnell and Bulwer Island closed, the country slid to around three weeks of cover and nobody in Canberra much wanted to talk about it.

The Fuel Security Act 2021 was the fix, and the MSO it created came into force on 1 July 2023. Importers now have to hold 27 days of petrol and jet fuel and 32 days of diesel, calculated against their own average daily imports over the previous year. The two surviving refineries, Ampol's Lytton plant in Brisbane and Viva Energy's operation at Geelong, carry lower targets because they're producing the stuff on site.

Diesel gets the heaviest weighting on purpose. It runs the mines, the harvest and every truck on the Hume. If petrol runs short, commuters grumble. If diesel runs short, the shelves at Woolies empty.

What most people don't realise is how new all of this is. When the Iran conflict broke out, the MSO had been running for less than three years. Bowen told Parliament in early March that stocks were at their highest in 15 years: 34 days of diesel, 36 of petrol and 32 of jet. A week later the government drew on strategic reserves for the first time since 2022, releasing about six days' worth of petrol and five of diesel, then loosened the MSO on top of that.

The numbers since then

Compared with other countries, we're still thin. Japan and South Korea keep well over 100 days. The Australian Institute of Petroleum has put the cost of full IEA compliance at around $6.8 billion, which is the main reason successive governments have shrugged at it.

The May budget went some of the way. There's $3.2 billion for a government owned Australian Fuel Security Reserve of about one billion litres of diesel and jet fuel, and the MSO is to rise by another ten days for all three fuels by 2030. Export Finance Australia has also underwritten 17 cargoes since March, roughly 690 million litres of diesel and 150 million of jet fuel, to make sure the ships kept turning up.

And they did. By the end of May, Bowen was pointing to 48 days of petrol, 36 of diesel and 30 of jet, with 46 ships on the water. As at 12 September the figures were 41 days of petrol, 32 of diesel and 30 of jet.

Read those two lines again. Petrol has drifted down seven days since May. Diesel has drifted down four. These are consumption cover figures rather than the MSO's own yardstick, but the direction is the point. The industry has been running down the surplus it built in autumn, exactly as the relaxed rule allowed. Now it has to build it back.

What this means at the bowser

The real story is the timing.

Rebuilding a buffer means buying cargoes. Buying cargoes right now means paying for Brent crude at around US$107 a barrel and Tapis, our regional benchmark, at US$110, up 46 per cent since July. Commonwealth Bank's Vivek Dhar reckons Brent could need to reach US$150 before Asian demand starts falling away, if global inventories keep draining. Saudi Arabia's main pipeline from east to west has been knocked out, the Red Sea and the Strait of Hormuz are both active war zones, and Saudi output is at its lowest since 1990.

Into that market, the ACCC's latest weekly report has regular unleaded across the five largest cities at 209.9 cents a litre on 9 September, up 5.3 cents in a week. Diesel was 253.7, up 4.4. That's 39 cents and 77 cents above 20 February, before the conflict. Regional towns were paying 215.1 for petrol and 258.3 for diesel. Perth had the dearest petrol of the big five at 216.4, Adelaide the cheapest at 205.7, and Canberra diesel was a painful 271.0.

The NRMA's Peter Khoury says the gap between wholesale and retail is nonexistent, which means the rises already in the wholesale price haven't reached the pump yet.

So three things land in the same fortnight. Oil above US$100. The excise back at 53.7 cents a litre since 3 August, with Deputy Prime Minister Richard Marles saying on Tuesday "we don't have plans" for another cut, and Bowen adding that "we're not going to respond to every daily movement on the world oil price". And the stockholding rule snapping back to full strength on 30 September.

To be fair, restocking is a cost to the majors rather than a price you pay directly. Whether any of it reaches the bowser depends on how hard Ampol, Viva, BP and the supermarkets compete. But here's the fascinating footnote: the ACCC's direction to publish weekly price monitoring reports also expires on 30 September. The referee walks off the field on the same day the rule comes back.

The bigger picture

The upshot is that Australia is about to find out whether its new fuel security architecture works under load. The MSO was designed for a shock. It got one within three years of switching on, the government loosened it to cope, and now it has to be tightened again while the shock is still running.

If the government extends the relief again in the last week of September, take it as a signal they're still nervous about supply. If they let it lapse, they're betting the 46 ships and the billion extra litres have done their job.

Worth keeping in mind either way:

The fuel industry rarely makes headlines until prices spike. This time the more interesting story is what's happening in the tanks behind the servo, not on the sign out the front.