Is it possible that excise cuts increase what local importers and retailers can afford to pay for the current severely-limited global supplies of fuel, thereby alleviating the domestic retail price and macroeconomic shock without necessarily creating "shortages" (which I take to mean unavailability at any price)?
That is, might cutting excise let Australia "jump the queue", so to speak, in the global race for fuel?
If higher prices resolve quantity shortages then letting domestic importers pay higher prices on global markets might just improve the situation for Australia (at the expense of other countries).
Or do global fuel supply contracts not work this way (genuine question)?
Hi Tim. Thanks for your question. I don't have any special insights into oil markets, so I'll assume they work like normal commodity markets, in which importers contract for delivery of a agreed quantity at an agreed price on a specified date (typically months in the future).
Prime Minister Albanese and others described the excise cut as flowing entirely to the end consumer. If that is so, then retailers and importers might be expected to see no change in their margin per litre, but they will likely see an increase in the quantity demanded by consumers.
If retailers/importers face inelastic supply (i.e. they can't obtain any extra fuel at any reasonable price) then retail prices might drift upwards to dampen the extra demand. Consumers would end up paying the original price, with the "excise cut" pocketed by retailers/importers.
If retailers/importers face elastic supply (i.e. they can buy extra fuel at a higher price) then the additional demand induced by the excise cuts may increase importers' confidence that they can order more and sell it at (what has to be) a higher price. That will diminish the excise cut...
That Koutsantonis quote is gold.
Is it possible that excise cuts increase what local importers and retailers can afford to pay for the current severely-limited global supplies of fuel, thereby alleviating the domestic retail price and macroeconomic shock without necessarily creating "shortages" (which I take to mean unavailability at any price)?
That is, might cutting excise let Australia "jump the queue", so to speak, in the global race for fuel?
If higher prices resolve quantity shortages then letting domestic importers pay higher prices on global markets might just improve the situation for Australia (at the expense of other countries).
Or do global fuel supply contracts not work this way (genuine question)?
Hi Tim. Thanks for your question. I don't have any special insights into oil markets, so I'll assume they work like normal commodity markets, in which importers contract for delivery of a agreed quantity at an agreed price on a specified date (typically months in the future).
Prime Minister Albanese and others described the excise cut as flowing entirely to the end consumer. If that is so, then retailers and importers might be expected to see no change in their margin per litre, but they will likely see an increase in the quantity demanded by consumers.
If retailers/importers face inelastic supply (i.e. they can't obtain any extra fuel at any reasonable price) then retail prices might drift upwards to dampen the extra demand. Consumers would end up paying the original price, with the "excise cut" pocketed by retailers/importers.
If retailers/importers face elastic supply (i.e. they can buy extra fuel at a higher price) then the additional demand induced by the excise cuts may increase importers' confidence that they can order more and sell it at (what has to be) a higher price. That will diminish the excise cut...
Absolutely agreed Dave!
(And many thanks for the shout out)
Chris R