You never had to worry much about the difference in price between petrol and diesel. They tracked together. But over the past 15 years, diesel has averaged five cents a litre more than petrol, ranging from two to 13 cents.
But now they have parted ways as the global market for energy has blown up. Diesel now costs 44 cents a litre more than petrol. Those driving petrol cars are enjoying a slight respite from high prices, and those driving diesel utes are in a world of pain.
How on earth has this happened? It is not about greedy local retailers, I’m afraid. The global price of diesel has shot up, as this chart shows.
The answer can’t be traced back to the oilfields of Qatar either. Oil can be turned into petrol or diesel. The issue instead seems to be about demand for refined products: machines use diesel — from Russian tanks to electric generators to the little bobcat clearing the ground in the vacant lot down the street.
In Australia, only a third of diesel demand is retail. The rest is bought wholesale and poured into diggers, tractors and mining equipment, especially in Western Australia.
We now sell twice as much diesel as petrol. In 2010 the two products sold in roughly equal volume.
Australia is hit particularly hard by the rise in the price of diesel because we do a lot of mining, but also because we’ve been doing something quite silly — expanding our fleet of diesel cars aggressively.
About a quarter of all vehicles on the road in Australia were diesels in 2021. But that share is growing as more than a third of new car sales are diesels. As this next chart shows, the big reason is our enthusiasm for big US-style utes. The Ford Ranger is a diesel, and so are most models among its mates the Hilux, the Navara, etc.
That means a lot of tradies are still feeling serious petrol pain. Don’t rule out more crazy interventions — the Australian political system is nothing if not responsive to the feelings of tradies. Interest rates will also hover higher for longer unless diesel falls.
In the US, the price of diesel has become a hot political issue for President Joe Biden, with pressure to intervene in the market. Of course, if he does and makes diesel cheaper in the US, this will only lift diesel prices higher for the rest of the world.
The only upside in all of this could be a faster transition to electric vehicles — see the electric blue line in the graph above? It is finally raising its head, and if diesel prices don’t come back down that could be the start of a new trend.
