One of Australia's Big Four banks makes dire forecast on fuel prices that would have disastrous knock-on effects to the economy

By JACOB SHTEYMAN FOR AUSTRALIAN ASSOCIATED PRESS Published: 13:20, 6 May 2026 | Updated: 13:20, 6 May 2026 Diesel prices could surge above $4 a litre within the next few months under a scenario modelled by economists at National Australia Bank. Fears of service stations running dry have subsided and petrol prices are back under the $2 a litre mark as the government makes efforts to secure additional supplies to Australia. But the oil shock has not gone away and the ongoing blockade of the Strait of Hormuz shows no sign of ending soon. Diesel prices previously peaked during the current crisis under $3.30 a litre in early April. An even larger spike in the diesel price would have a significant impact on prices across the economy, given it is a major input cost in freight, agriculture, mining and transport industries. While the severe scenario was not NAB's base case forecast, senior economist Taylor Nugent said it was a real risk. 'The input shocks of a price spike this size would be very difficult for businesses to absorb,' he said. Countries continue to run down fuel stockpiles, which have been keeping a lid on prices, with about 9.5 per cent of global oil demand disrupted, according to CBA commodities analyst Vivek Dhar. NAB has forecast diesel could hit $4 a litre if the Strait of Hormuz is not reopened soon, which would have significant effects on the economy as freight, agriculture and mining rely on it Fresh forecasts released by the RBA on Tuesday showed a dire outlook for inflation and economic activity, even with relatively benign assumptions that the benchmark oil price will fall to $US82 a barrel by the end of the year. It is just under $US110 currently. Even the dire scenarios produced by the RBA are less pessimistic than oil price assumptions recently produced by the European Central Bank. Using the ECB's severe scenario - in which 60 per cent of oil transiting the Strait is disrupted and the oil price hits $US145 a barrel in the second quarter - NAB analysts Vince Carse and Jessie Cameron modelled wholesale diesel prices shooting above $4 a litre in Australia. If borne out, inflation would likely shoot above the forecast peak of 5.2 per cent in the RBA's adverse scenario, sparking further interest rate hikes.  The cash rate was raised to 4.35 per cent on Tuesday and economists were divided on whether the central bank would follow it up with more hikes or enter a prolonged pause, with many looking towards the upcoming federal budget. Federal Treasurer Jim Chalmershas insisted it would be one of the most responsible seen in very long time. 'We intend to play a helpful role in the fight against inflation in this budget,' he told reporters on Wednesday. Treasurer Jim Chalmers has insisted that the budget will not include big spending to promote inflation, which in turn would cause more interest rate hikes But economists at NAB joined Westpac forecasting another hike in June. The Commonwealth Bank and ANZ Bank continued to predict a pause from here on out. HSBC's local chief economist Paul Bloxham said the three hikes since February allowed the RBA to enter 'wait and see' mode. But the bank could be forced to act more decisively if the treasurer unveils higher spending in the May 12 budget than expected. 'A key risk to our view is that the federal budget is more expansionary than we have been assuming and that this could force the RBA to have to hike further,' Mr Bloxham said. Governor Michele Bullock said government handouts, like a rumoured tax offset or a cut to the fuel excise, add to demand, which the RBA was trying to dampen as part of its fight against inflation. Deloitte Access Economics partner Stephen Smith said governments needed to work in better alignment with the central bank to bring inflation under control. No comments have so far been submitted. Why not be the first to send us your thoughts, or debate this issue live on our message boards. By posting your comment you agree to our house rules. Do you want to automatically post your MailOnline comments to your Facebook Timeline? Your comment will be posted to MailOnline as usual. Do you want to automatically post your MailOnline comments to your Facebook Timeline? Your comment will be posted to MailOnline as usual We will automatically post your comment and a link to the news story to your Facebook timeline at the same time it is posted on MailOnline. To do this we will link your MailOnline account with your Facebook account. We’ll ask you to confirm this for your first post to Facebook. You can choose on each post whether you would like it to be posted to Facebook. Your details from Facebook will be used to provide you with tailored content, marketing and ads in line with our Privacy Policy.