Oil falls below US$90 and Hormuz is demined 

There has been a significant change in the global oil crisis. The Strait of Hormuz has reportedly been cleared of mines and Brent crude has fallen below US$90 a barrel. For Australian motorists and businesses, both developments are welcome. But neither means the fuel crisis is over — because Australia's biggest problem is increasingly not crude oil. It is the availability and cost of turning crude into petrol, diesel and aviation fuel.

For months, the Strait of Hormuz has been at the centre of the global energy crisis.

Before the conflict, more than 20 million barrels of oil a day moved through the narrow waterway connecting the Persian Gulf with the Gulf of Oman and the wider world.

That extraordinary concentration made Hormuz one of the most important pieces of economic infrastructure on Earth.

On 25 August, US President Donald Trump announced that mines had been cleared from the international waters of the Strait.

That matters.

Mines represent a threat not only to individual ships but to the entire commercial calculation behind sending tankers into a conflict zone. Shipowners, insurers, crews and charterers all price that danger.

Removing them eliminates one significant physical risk.

It does not, however, make the Strait normal again.

Traffic remains dramatically below pre-war levels

According to Reuters, tanker movements through Hormuz remain severely depressed.

Vortexa estimated flows through the Strait at about 5 million barrels a day on Monday, compared with more than 20 million barrels a day before the conflict.

Maritime attacks have not disappeared.

The political confrontation between Iran and the United States has not disappeared.

And shipowners still have to decide whether the financial reward for entering the region justifies the risk.

Demining Hormuz is therefore an important development — but it is not the same thing as reopening the old energy system.

That distinction matters enormously to Australia.

Oil has fallen below US$90

There has been another encouraging development.

Brent crude fell about 4 per cent on Tuesday to approximately US$88.43 a barrel, its lowest level in about a week.

The market reaction followed the latest American sanctions against Iran.

Rather than concluding that the measures would immediately remove another large quantity of oil from world markets, traders appear to have judged them less disruptive than feared.

That pushed crude prices lower.

For Australia, falling crude prices are unquestionably preferable to rising ones.

But there is an important trap in looking at the Brent price and assuming Australian petrol should immediately become dramatically cheaper.

Australia does not buy a barrel of Brent crude and pour it into the family car.

We buy petrol and diesel in a market heavily influenced by the price of refined petroleum products in Asia.

And that is where the present crisis becomes more complicated.

Australia's real problem is increasingly refined fuel

The Australian Competition and Consumer Commission says international benchmark prices have the greatest influence on what Australians pay for petrol and diesel.

The relevant benchmark for Australian petrol is Singapore Mogas 95.

For diesel, it is Singapore Gasoil 10 ppm.

Those products are made in refineries.

And the global refining system has been badly damaged by the present conflicts.

Reuters estimates conflict has reduced global refining capacity by around 10 per cent.

Middle Eastern disruption has been compounded by attacks on Russian refining infrastructure.

The result is a peculiar global petroleum market in which crude oil can become cheaper while the products people actually need remain expensive.

That distinction is particularly important for Australia.

Australia has continued buying fuel — but at a price

One of the remarkable features of the crisis has been Australia's ability to maintain supply.

While Asian imports of petrol, diesel and aviation fuel have fallen substantially overall, Australia has so far been sufficiently wealthy and commercially attractive to keep obtaining product.

That should not be confused with immunity.

It means Australia has been able to compete for scarce fuel.

In a shortage, price becomes part of the allocation mechanism.

Countries and companies prepared and able to pay can secure cargoes that poorer buyers may struggle to obtain.

That helps explain why Australia's immediate problem has generally manifested itself through price rather than widespread physical shortages.

It is an important distinction.

Australia has fuel.

But keeping it flowing through a disrupted international market has become expensive.

Why crude can fall while petrol remains expensive

Normally, cheaper crude eventually contributes to cheaper fuel.

But the relationship is not instantaneous and it is not one-for-one.

A litre of Australian petrol incorporates far more than the cost of crude oil.

There is the cost of refining.

There is international shipping.

There are insurance and security costs.

There is the Australian dollar-US dollar exchange rate.

There are domestic transport and storage costs.

There is fuel excise and GST.

There are wholesale and retail margins.

And there is the international price of the finished product itself.

During a refining shortage, the gap between crude and refined fuel prices can become unusually large.

That is essentially what the world is experiencing.

Australian motorists should still watch Singapore

For Australians wondering when relief will arrive at the bowser, Brent is therefore only part of the answer.

The more useful indicators are the Singapore refined-fuel benchmarks.

If crude continues falling and Singapore petrol and diesel prices begin falling with it, the improvement should eventually work through Australia's wholesale and retail supply chain.

The ACCC says movements in international benchmark prices can take around two weeks to move through to Australian city prices, and longer in regional areas.

There is another complication.

Sydney, Melbourne, Brisbane, Adelaide and Perth have retail petrol price cycles.

Those cycles are generated by retailer pricing strategies rather than movements in wholesale fuel costs.

A falling international fuel price therefore does not guarantee that every service station will immediately become cheaper.

Diesel does not experience the same retail price cycles.

The bigger danger has not disappeared

There is another reason Australians should be cautious about declaring the energy crisis over.

Reuters calculates that countries and regions affected by conflict, instability or major sanctions produced around 43 per cent of global oil supply in 2025.

That is an extraordinary concentration of the world's petroleum system inside geopolitical trouble spots.

Iran is only one component.

Russia remains at war with Ukraine.

Russian refining infrastructure remains vulnerable.

Libya remains unstable.

Venezuelan production and exports remain affected by sanctions.

Middle Eastern infrastructure has been damaged.

Global inventories have been drawn down.

Emergency petroleum reserves have already been used to help stabilise the market.

The world therefore has less redundancy than it had before the crisis.

Demining Hormuz reduces one risk — not all of them

The removal of mines is important precisely because it removes one obstacle to restoring normal shipping.

If tanker traffic increases, insurance costs decline and shipowners regain confidence, more Gulf petroleum can reach world markets.

That would be good news for Australia.

But the crucial number to watch now is not simply whether Hormuz is technically navigable.

It is how much petroleum actually moves through it.

A Strait capable of carrying more than 20 million barrels a day but actually moving around 5 million remains a severely impaired artery.

The test will come over the next several weeks.

Do flows rise?

Do tanker attacks decline?

Do insurance premiums fall?

Do Gulf refineries return to greater production?

Do Singapore refined-fuel prices follow crude lower?

Those developments would provide much stronger evidence that Australian fuel-price relief is approaching.

There is a second possible outcome

The encouraging developments could also reverse quickly.

Iran has not disappeared as a geopolitical risk.

The latest US sanctions could still produce retaliation.

Another tanker attack could change market sentiment within hours.

New mines could be laid.

A major refinery could be damaged.

Russia's refining system could suffer further disruption.

And because inventories and emergency reserves have already been drawn down, the global system has less capacity to absorb the next shock.

That is why the fall in Brent below US$90 should be treated as a positive development rather than an all-clear signal.

Australia has learned something important

The crisis has exposed an uncomfortable feature of Australia's energy security.

Our vulnerability is not simply whether there is enough crude oil somewhere in the world.

It is whether enough of the right finished fuels can be produced, shipped to Australia and purchased at an economically tolerable price.

Diesel keeps trucks moving.

It powers agricultural machinery.

It is used in mining and construction.

It provides electricity in remote communities and backup generation elsewhere.

Aviation fuel keeps Australia's enormous domestic and international aviation network operating.

Petrol keeps millions of households mobile.

A shortage or sustained increase in the cost of those products therefore spreads far beyond the service station.

Fuel becomes a transport cost.

The transport cost becomes a business cost.

The business cost eventually becomes part of the price of food, construction, freight, tourism and almost everything else moved around this vast country.

That is why the Hormuz story remains an Australian story.

The Times View

For the first time in some time, two important forces in the global oil crisis have moved in Australia's favour simultaneously.

The Strait of Hormuz has reportedly been cleared of mines.

Brent crude has fallen below US$90 a barrel.

Both are genuinely encouraging developments.

But Australians should resist the temptation to look at the falling crude price and expect an immediate equivalent reduction at the bowser.

The global petroleum crisis has evolved.

It began as an obvious question about whether oil could escape the Persian Gulf.

It has become a much more complicated question about whether the world has enough functioning refineries, tankers, inventories and alternative supply routes to deliver the finished fuels modern economies require.

Australia has so far demonstrated that it can buy its way through much of that disruption.

That has kept fuel flowing.

It has not kept fuel cheap.

The next important milestone will therefore not be another announcement from Washington or Tehran.

It will be considerably more mundane — and considerably more important to Australian households.

Watch the price of refined petrol and diesel in Singapore.

If those prices begin following crude oil down, today's developments may eventually become something Australians can actually see on the service-station price board.

Until then, Hormuz may be safer and oil may be cheaper, but Australia's fuel crisis is not yet over.