Recent increases in fuel prices have brought renewed attention to the cost of operating vehicle fleets. For many organisations, particularly councils and asset-intensive businesses, fuel is a core operational input, and higher prices cannot be sustained for long before budgetary impacts are felt.

While price spikes are often (rightly) treated as temporary disruptions, there is often a lingering thought of “what if” this time it is something more than that?… what if the price keeps going higher, for years and years?… and what are the implications for fleet planning if that were the case? These are the questions increasingly being asked by Australian organisations in response to recent developments in geopolitics.

Price spikes also highlight a more structural and strategic issue: How best to manage ongoing exposure to fuel markets that are volatile, vulnerable, externally driven, and largely outside local control.

At the same time, alternatives are emerging. Electrification is no longer a distant concept, but a practical pathway already being implemented across light vehicle fleets as well as expanding into broader applications. Australia, of course, has an abundance of sunshine and space for PV and other renewables.

This blogpost tackles some of these big issues by focusing in on an important question: Do recent fuel price increases swing the case in favour of a low-emissions fleet?

Fuel prices in perspective

Fuel prices are primarily determined by oil prices, plus transport, insurance, processing, and distribution costs. It is obvious that the higher the long-term fuel price, the better the case for EVs is likely to be, all other things equal. However, there is considerable uncertainty and difference of opinion on where fossil fuel prices are headed both in the short and longer terms.

From a macroeconomic perspective, short term fluctuations are mere noise that can simply reflect normal economic cycles, or geopolitical tensions, occurring over a few months or years. To understand longer term fleet transition economics, a longer term, less news-influenced, view, of fuel prices can be useful.

As oil is priced in US dollars, and the supply of US dollars is expanding, we need to first adjust the “denominator” as appropriate. When adjusted for decades-long monetary expansion (using broad money supply as a proxy), oil prices ever since the mid-1980s appear to follow a cyclical, range-bound pattern, enabling a better perspective of where we are currently, and where we may be headed.

Despite recently breaking out of long term down trend (as shown by the sloping yellow line in the graph below), current normalised prices still sit toward the lower end of a 40-year range, suggesting that oil is relatively inexpensive in real terms despite moderate nominal prices.

While extreme events such as the lead-up to the Global Financial Crisis, and COVID-19, represent high and low outliers respectively (with price extending to the horizontal red lines shown on the graph), the broader pattern indicates a price dynamic that is fluctuating within a “main range” (as shown by the horizontal green lines in the chart). The time it takes for price to move between the top and bottom of this main range (in either direction) appears to take anywhere between 5 to 15 years.

If historical dynamics persist, there thus appears potential for a substantial increase in real oil prices over the coming decade. Our analysis suggests that within a decade, by 2036, oil price is reasonably likely to increase to at least the middle of the range (shown by the horizontal dotted green line in the chart). This would represent an increase of 100% in money-adjusted terms from today’s price.

On the downside, it appears that the recent (early 2026) low oil prices (around $60 per barrel), likely represents the lowest price that could be expected, going forward. Even if oil prices return in this direction in the short term (which they may well do, due for example to economic downturn), it is likely fuel prices may remain relatively elevated due to increases in transport and insurance costs, and potential supply chain delays, due to ongoing conflict in the Middle East and elsewhere.

The notion of mostly higher rather than lower fuel prices over the coming decade is further supported by several underlying market fundamentals, including sustained underinvestment in supply, policy constraints on new production, and continued demand growth in developing economies.

Moreover, looking at the 5-year price movement for an alternative energy commodity, lithium (graph below), it seems that the market has already been factoring in an increase in demand for battery production, in response to the improving economics of electric energy systems, relative to fossil fuels. Prices of the metal began to increase significantly since late 2025, and this trend appears more than likely to continue for the short to medium term, although nothing is certain.

Note that the very high prices observed in 2022 were associated mainly with Chinese Government subsidies for EV manufacture, and to a lesser extent rising oil prices, however higher oil prices together with broader electrification efforts (including home and grid-scale batteries, in addition to EVs) are likely to play a stronger role over the next 10 years.

Exposure to fuel markets is a structural risk

Australia’s fuel supply depends on long, complex international supply chains. Refined fuels are produced, traded, and transported across global markets before reaching local users.

This introduces multiple points of exposure:

• Shipping distances and logistics constraints
• Weather (including climate change-related) and operational disruptions
• Refining capacity and market dynamics
• Global instability and demand fluctuations

Events in any part of this system can influence price and availability, even if they occur far from Australia. The exact nature of future disruptions is difficult to predict, but the broader conclusion is simply that fuel costs are inherently uncertain.

For organisations with high fuel use, this translates into ongoing financial and operational risk.

From uncertainty to measurable impact

Fuel price movements are often discussed in general terms. However, their impacts can be quantified and forecasted quite precisely under a range of assumptions. This kind of scenario analysis, or sensitivity testing, can help overcome blind uncertainty to some extent, at least providing organisations with a better understanding of the likely range of impacts associated with changing fuel prices, and the implications for fleet renewal decisions.

Using a fleet modelling approach applied to a Victorian council with relatively high vehicle utilisation, we assessed how changes in fuel prices translate into long term financial impacts of different kinds of fleet transition strategies. The goal was to test whether recent changes in fuel price trajectory fundamentally alter the business case for low-emission vehicle transition.

We tested two situations.

• Firstly, a low fuel price situation, representative of the conditions in early 2026, in which fuel prices were in the $1.60 to $1.80 per litre range, and projected increase in oil costs were 1% per annum.
• Secondly, a high fuel price situation, representative of more recent conditions, in which petrol and diesel prices are $2.40 and $3.00 per litre, respectively, and projected increase in oil costs are 7% per annum (the rate needed to increase money-supply adjusted oil price by 100% in 10 years).

For each fuel price situation, we tested a BAU scenario plus 3 fleet transition strategies, from conservative (scenario 1), moderate (scenario 2), and ambitious (scenario 3). The increasing ambition of each scenario was modelled as a faster transition from internal combustion engines (ICE) through hybrids to 100% EVs, with the most ambitious strategy constrained only by model availability and service reliability/safety limits.

As can be seen in the results for the low fuel prices (chart below), a low emission fleet transition comes at a cumulative net cost (that is, cost compared with BAU) all the way to 2040, whichever level of ambition is chosen.

By contrast, as can be seen in the results for the high fuel prices (chart below), a low emission fleet transition comes at a cumulative net cost in the short term (albeit much lower cost due to immediate larger fuel cost savings), but also that positive cashflow can be generated as early as 2031.

The results also show that, under the high fuel price situation, the most ambitious scenario (scenario 3 – shown in red in both graphs) comes out as a much bigger financial winner, delivering much earlier return on investment and millions of dollars extra in long term cumulative cash flow compared with other, less ambitious, strategies.

Additionally, and not surprisingly, the most ambitious scenario also delivers the steepest and fastest pathway to zero emissions, as shown by the red line in the graph below.

These results suggest that the climate change economics of fleet transition may have shifted, as it appears that, under high fuel prices, the clear winner both financially and environmentally is a high ambition fleet transition strategy.

While we only tested two quite extreme situations, pre-shock and immediate post-shock, this provides some “bookends” for thinking about the potential range of financial implications that can arise from fleet strategy, in a time of uncertainty. The reality may lie between these extremes, as it usually does. While we are not sure about exactly where fuel prices will end up, based on the analyses outlined in this blog, we think that a profitable fleet transition (return on investment) may now be a possibility closer to 2030 than to 2040, as had previously been the case.

Of course, none of this plays out the same way for every organisation. Fleet transition outcomes are heavily shaped by the specific context including the mix of vehicle types, how far they are driven, load requirements, and even how vehicles are allocated and shared. A metro-based, passenger-heavy fleet will behave very differently to one dominated by utes and extensive regional travel. The smartest approach is to ground these insights in tailored modelling that considers your own vehicles, your own usage patterns, and your own replacement cycles, to understand what makes most sense in your context.

 

If you are looking for some quantitative insights to support your organisation’s fleet transition strategy, please reach out to Ian, Yusi, Barbara or Patrick for more information.

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