Australia: Oil Stock Levels Pose a Systemic Economic Risk

Australia is running a continuous and growing deficit in total oil stocks, defying the International Energy Agency's (IEA) mandate on members to maintain 90-days of coverage and perpetuating the country’s vulnerability to swings in global oil markets. Whether global supply imbalances arise from geopolitical discord, OPEC-sanctioned supply adjustments, or other market balance factors, the fact that Australia maintains no strategic reserve and has less than a 50 day supply of oil bodes poorly for the potential cost to the economy in the event of a price spike and potential resulting shortages.

• Australia is the only non-exempt member of the IEA that fails to maintain the 90-day reserve commitment and is also the only member to have experienced a twofold decline of its oil stocks over the past 10 years.

What is the source of the Australia oil stock balance problem, and how can it be remedied? Oil stocks, which consist of primary oil—such as crude oil, natural gas liquids (NGLs)—and refined oil products, are being dragged down by falling levels of crude oil. Crude oil stocks have fallen along with the country’s long-term declining production and lower refining intake, increasing the country’s net oil imports.

• The most direct route to satisfying the IEA mandate and reducing the systemic risk to the Australian economy and its energy security would be to continue increasing imports of refined oil products.
• Existing refineries operate at near full capacity and public policy strategies—such as higher fuel efficiency standards—would take too long to implement in the context of aggressive demand for oil from the likes of India as well as continuing conflict throughout the Middle East that is increasing the geopolitical risk premium on global oil prices.

Data indicates that Australia has experienced declining stocks of primary oil (crude oil, NGLs, etc) whereas the country's stock of refined products stocks has remained comparatively stable. However, the country has increased its reliance on imported refined oil products by scaling back its domestic oil refining capacity, making it ill-prepared to cope with growing demand for oil products and potential supply shocks. The major exporters of oil products to Australia are South Korea, Singapore, and Japan, which together account for about 70 percent of Australia's total oil products imports.

You may also want to visit our Global Oil Prices Data Insight for up-to-date coverage of key prices globally.