Diesel Has Become a Shipping Problem

Brent crude settled at US$115.32 a barrel on Wednesday 28 October, after Yemen's Houthis said they had hit Saudi Arabia's largest refinery with a missile. Saudi authorities had not confirmed the strike. Brent has spent most of the past week between about US$114 and US$117, its highest level since April.

The crude price gets the headlines. For Australia, I think the more useful question is what it costs to get fuel onto a ship and over here, and right now that is the part of the market under the most strain.

The ships are the bottleneck

Since the Middle East conflict began in late February, a large share of the world's tanker fleet has been tied up. Some ships are waiting weeks for ship-to-ship transfers outside the Strait of Hormuz. Others are avoiding the Red Sea and sailing around Africa, which takes far longer. A transfer between two ships ties up both vessels while it happens. Each of these leaves fewer ships free to carry everyone else's cargo.

The result is freight pricing nobody has seen before. Argus reported that on 7 October a supertanker was booked from the US Gulf Coast to Asia for a lump sum of US$81 million, the highest it has recorded on that route. The pre-war high was US$22.5 million. Supertanker day rates on the Persian Gulf to China route passed US$1 million in September, and rose to more than US$1.4 million in early October on Bloomberg data reported by OilPrice.

The IEA's October Oil Market Report makes the same point from another angle. Brent futures rose 13 per cent from the start of September, while physical North Sea crude rose 43 per cent to about US$134 a barrel. When the barrel you can actually load and deliver costs that much more than the futures price, delivery has become the constraint.

Why diesel is the fuel to watch

Refined products are recovering more slowly than crude. The IEA says Middle East exports of refined products were still below half their pre-war level in September, and that global diesel availability was 1.7 million barrels a day lower in the September quarter than a year earlier. Wholesale diesel in Singapore went above US$200 a barrel in mid September. The IEA expects tight diesel supply to persist well into 2027.

Australia imports more than 90 per cent of its liquid fuels, and our refineries supply around 20 per cent of national needs. So we pay the world price for diesel plus the cost of shipping it, and both have gone up.

The government's fuel figures show what that means at the pump. On 21 October, average retail diesel in the five largest cities was 100 cents a litre higher than before the conflict, while petrol was 65 cents higher. Diesel was 46 cents below its late March peak, which is some relief, but Brisbane diesel still averaged $2.80 a litre.

Supply is holding, with less of a buffer

I want to be fair to the supply side, because it has held up. As at 20 October, Australia held 31 days of diesel, 39 days of petrol and 28 days of jet fuel under the Minimum Stockholding Obligation. At least 3.0 billion litres of crude and fuel were due to arrive over the following four weeks, and 38 tankers carrying refined products were on the water to Australia as at 23 October.

There are softer spots. Diesel stocks were 2,862 megalitres, a little below the March quarter average of 2,966. The government has also extended a 20 per cent cut to the required diesel and petrol reserves until 31 January 2027, to give suppliers room to respond to demand spikes. The Energy Minister has described that cut as, in effect, a release of reserves. And on 23 October Queensland had 27 service stations out of diesel at the end of the day, out of about 1,800 sites.

None of that adds up to a shortage. What it does mean is less spare room than usual if another disruption comes along.

Why it matters for property and business

Diesel sits underneath most of the economy I work around. It moves building materials, runs earthmoving equipment and concrete trucks, powers farms and mines, and carries freight up and down the coast. When diesel stays high, those costs work through to construction budgets, rents for logistics space and the price of goods. That flows into inflation, which is why I keep an eye on fuel even when the topic is property.

For anyone running or funding a project, the practical point is that the freight part of the fuel bill does not fall straight away when the news improves. As one weekly fuel market update put it in late October, even an easing of tensions is unlikely to restore normal tanker availability immediately. Ships have to reposition, insurers have to reprice risk and stocks have to be rebuilt. I would treat fuel and freight assumptions in a budget as something to revisit regularly, not set once.

What I am watching

I will be watching the weekly government fuel figures, especially diesel days of cover and the number of tankers on the water. I will watch whether freight rates come down from their October peaks, and whether physical crude prices move back toward futures. And I will be reading the IEA's November report for any change to its view that diesel stays tight into 2027.

None of this is a recommendation to borrow, lend, invest or sell. Everyone's position is different.

Sources

Australian Government Fuel Plan, Fuel statistics (data as at 20 to 23 October 2026)

DCCEEW, Minimum Stockholding Obligation and temporary reduction to 31 January 2027

Minister for Climate Change and Energy, press conference transcript (3 Oct 2026)

International Energy Agency, Oil Market Report October 2026 (14 Oct 2026)

Argus, US Gulf VLCC freight rates hit record highs (7 Oct 2026)

OilPrice via Yahoo Finance, Tanker rates soar to record as oil crisis becomes shipping crisis (10 Oct 2026)

Weekly liquid fuel markets update, week ending 23 October 2026 (media release, 26 Oct 2026)

ABC News, markets live blog, oil prices rising again after Saudi refinery attack (28 Oct 2026)

Reuters via Business Recorder, Oil prices edge up about 1pc (29 Oct 2026)

Personal views, not financial advice.