And what the real price means for your business.
As someone who has traded markets for over 30 years, I am regularly asked for my view on the economy and on pricing across asset classes.
Given the ongoing conflict in the Middle East and the disruption it is causing to the global economy, those conversations have become a lot more frequent. Property developers asking whether to commit to their next project. Founders wondering whether to raise money now or wait. Business owners trying to figure out what rising fuel costs mean for margins that were already under pressure.
The answers to these questions matter - particularly when the near-term outlook is so uncertain.
I have been assisting businesses informally on these issues for some time. I've now decided to formalise that work and have launched Northcliffe Advisory. Part of Northcliffe's offering is a regular briefing: The Long Game.
I'm not an economist, but I've spent a career sitting alongside them, trading through the cycles they model, and learning to distinguish the signal from the noise. What I can offer is a trader's read on the macro picture - broad fundamentals combined with what market pricing is actually telling us, informed by three decades of navigating economic cycles and crises.
This month: oil. What's actually happening, why the price you see on the news isn't the price that matters, and what that means for your business, your property portfolio, and the economy you're operating in.
Brent crude is currently quoted around $110 a barrel. That number is real. But it's not the number that matters.
There are two oil markets, and they're telling very different stories right now. Understanding the gap between them helps inform those making strategic decisions today.
The price you see on the news is the futures price - the price of a Brent crude contract for delivery at some point in the future. It's traded on exchanges, mostly by financial participants. It reflects expectations.
The physical price - what actual barrels of oil are changing hands for in the real world - is a different story entirely. Dubai physical crude has been trading at $126 to $140 per barrel. That's a circa $30 gap between the paper market and the physical market.
Why? Because the futures market is pricing a short-lived disruption. The traders sitting in London and New York are still betting that the Strait of Hormuz reopens, that diplomacy prevails, that the conflict winds down. The physical market is pricing reality: approximately 20 million barrels per day of transit capacity has been shut down. Tanker traffic through the strait dropped 70% within days and then went to effectively zero. Shipping companies aren't sending vessels through. Insurers aren't covering them.
The futures market is trading hope. The physical market is trading reality. If you're making business decisions based on the headline number, you're underestimating the shock.
Before the war started in late February, the oil market was in contango - near-term contracts around $60/bbl, longer-dated contracts slightly higher. That's a calm, well-supplied market. Today, the curve has flipped into extreme backwardation: front-month contracts at double-digit premiums over the next month, with a $20/bbl premium where there used to be $2-3. That structure screams immediate shortage.
If the Strait stays closed past mid-April, futures will have to catch up to physical. That means the $110 you see on screen could reprice $20-50 higher in weeks. Even if the crucial shipping lane opens soon (and that's a very big IF), supply will take some time to normalise and physical prices may stay uncomfortably high for some time. Businesses need to plan accordingly.
The first thing an oil shock does is simple: it makes everything that moves more expensive.
Fuel prices in Australia have already surged. Diesel hit well over $3.00 per litre in March. Petrol across Sydney, Melbourne, and other capitals regularly exceeded $2.75. The federal government introduced a temporary fuel excise cut on 1 April - halving the excise, which should reduce prices by about 26 cents per litre with some further benefit kicked in by the states - but that's a band-aid on a structural wound. Supply is the real problem.
The immediate economic consequences are straightforward:
Transport and logistics costs spike. Every product that moves by truck, ship, or rail now costs more to move. This hits instantly. Freight operators pass costs through within days, not months.
Consumer spending contracts. When households spend more at the pump, they spend less everywhere else. This is a direct transfer from discretionary spending to energy costs. Retail, hospitality, and services feel it first.
Business confidence drops. Uncertainty about the duration of the disruption causes businesses to defer investment decisions, delay hiring, and hold cash. This is rational behaviour, but when everyone does it simultaneously, it becomes a self-reinforcing slowdown.
This is the part of the oil shock that's visible, intuitive, and already happening. But it's not where the real damage occurs.
The second wave is more insidious because it's less visible and takes 4-12 weeks to fully manifest.
Construction materials. Steel, concrete, asphalt, PVC, glass - all are energy-intensive to produce and transport. Diesel powers every excavator, crane, and delivery truck on every building site. The Housing Industry Association has warned that sustained fuel prices at current levels could add $8,000-$15,000 to the cost of building a new home. That's not a forecast, it's arithmetic.
Fertiliser and food. The Gulf region produces nearly half the world's urea and 30% of global ammonia. About a third of global fertiliser transits the Strait of Hormuz. Urea prices are already up 50% since the war began. This flows through to food production costs, which flow through to grocery prices, which flow through to CPI. The RBA is watching this closely - and it definitely played a part in their considerations before they decided to hike to 4.10% in March.
Aluminium and industrial inputs. Bauxite and aluminium transit through the same shipping lanes. Window frames, roofing, cladding, electrical wiring - all carry an energy cost premium that's now being repriced.
Oil doesn't just power cars. It's embedded in the cost of every physical product in the economy. When oil reprices, everything reprices - it just takes a few months to show up in your invoices.
This is the channel through which an oil shock becomes an inflation shock. And an inflation shock, in the current environment, means central banks keep policy tighter for longer. The RBA has already hiked twice in 2026. All four major banks expect at least one more hike to 4.35% in May. Westpac is forecasting 4.85% by August. Higher rates in the context of weakening activity is a complicated issue and the RBA will be faced with some tricky decisions in the months ahead.
This is where the oil shock meets the housing crisis - and where the consequences get structural.
Builders are already under pressure. The construction sector entered 2026 carrying fixed-price contracts signed at lower input costs. Rising diesel, steel, and material costs are eroding margins on every active project. Higher costs will damage productivity and affordability.
Housing completions will fall. The Urban Development Institute forecasts a shortfall of 380,000 dwellings by 2030 and an 11% drop in housing production in 2026. Rising costs and labour shortages are deterring developers from starting new projects. When feasibility margins compress, projects don't proceed. It's that simple.
Employment follows construction. Construction employs over 1.2 million Australians directly and supports hundreds of thousands more in adjacent industries. When building activity slows, subbies lose work, suppliers lose orders, and the multiplier effect works in reverse. This is exactly what happened during COVID's initial lockdown phase and during the early 1990s recession.
Rate hikes compound the pain. Higher rates increase the cost of development finance, reduce borrowing capacity for buyers, and compress property yields. A developer facing $3-plus/litre diesel, $15,000 higher build costs per dwelling, and a cash rate that will likely rise (at least in the short term) is looking at a fundamentally different feasibility than they modelled six months ago.
Oil shocks are not new. What matters is understanding the pattern they follow - because it's remarkably consistent.
Oil quadrupled from $2.90 to $11.65 per barrel. The result: stagflation - simultaneous recession and inflation. US GDP fell 3.2%. Unemployment hit 9%. The recession lasted two years. The 1970s oil shocks are the closest historical parallel to what we're seeing today: a supply-driven price surge caused by geopolitical conflict, compounded by existing inflationary pressures.
Iraq's invasion of Kuwait removed 4.3 million barrels per day from the market. Oil doubled from $17 to $36. The global economy entered a short but sharp recession. In Australia, the early 1990s recession saw property prices fall 8% nationally, with Melbourne declining 19% peak-to-trough. Interest rates, however, were far higher then - the cash rate peaked at 17.5% in early 1990.
A demand shock rather than a supply shock, but the economic transmission was similar. Construction stopped. Employment collapsed. Property pessimists forecast a 20-30% crash. What actually happened: stock markets fell 37% in weeks, then recovered within 12 months. Property recorded some of the fastest price rises in fifty years, driven by fiscal stimulus, rate cuts to near-zero, and a fundamental supply shortage.
Every oil shock and recession in the past 50 years has led to Australian property prices rising in the years that followed. Not because property is magic - but because supply always falls faster than demand, and the policy response always involves stimulus.
That's the historical pattern. But there are three reasons why this time might not follow the script so neatly.
In other downturns, the policy playbook was clear: cut rates, stimulate demand, and let cheap money flow into housing. After COVID, the RBA slashed the cash rate to 0.10% and the result was the fastest property price growth in decades.
That playbook is not available this time.
Inflation is running well above target. CPI sits at 3.8%. Trimmed mean inflation - the measure the RBA actually targets - is 3.4%, still materially above the 2-3% band. The RBA's own modelling suggests that sustained oil at $100+ would push headline CPI toward 5%. Underlying inflation is projected to peak around 3.7% in mid-2026 and remain above target until early 2027 at the earliest.
The RBA is hiking, not cutting. The Board raised the cash rate in February (to 3.85%) and again in March (to 4.10%). All four major banks expect another 25bps hike at the May meeting, taking the rate to 4.35%. Westpac's base case is two further hikes to 4.85% by August. This is the most hawkish RBA posture since 2023 - and it's happening while the economy is softening.
This is the inflation trap. The oil shock is simultaneously slowing economic activity and pushing prices higher. The RBA cannot cut to stimulate because inflation is running hot. It may even need to keep hiking to prevent inflation expectations from becoming entrenched. For property, this means: no rate relief for borrowers, rising development finance costs, and no monetary policy cavalry coming over the hill, at least in the short term.
The RBA cannot cut to stimulate because inflation is running hot from the oil shock. There is no monetary policy cavalry coming over the hill this time.
There is another headwind for property and the economy that is not getting enough attention and it will start to play out over the next 12-24 months.
AI is displacing white collar jobs at an accelerating rate. Microsoft's AI chief stated publicly that within 18 months, AI will be capable of performing all white collar work. That timeline is aggressive, but the direction is not in dispute. By March 2026, 45,000 tech workers had been laid off globally, with roughly 20% of those redundancies explicitly linked to AI automation. The real number of AI-displaced roles - including positions quietly eliminated without public announcement - is estimated between 200,000 and 300,000.
The financial sector is next. An estimated 200,000 Wall Street jobs are expected to be cut over the next 3-5 years. Legal paralegals face an 80% automation risk by late 2026. Legal researchers face 65% by 2027. Roughly 85% of recruitment screening is already automated or will be by 2027. The entry-level professional pipeline is being hollowed out.
Why does this matter for property? Because white collar incomes are the engine that supports premium property markets. Professional salaries underpin borrowing capacity in inner-city and metropolitan markets - the segments where property prices are highest and leverage is greatest. If those incomes are disrupted at scale, the impact on effective demand is significant. This isn't a 2026 problem yet. But it's a 2027-2028 problem, and anyone making capital allocation decisions today should be stress-testing against it.
White collar incomes are the engine that supports premium property markets. If AI disrupts those incomes at scale, the impact on borrowing capacity and property demand could be significant.
The historical pattern is clear: oil shocks and recessions have consistently been followed by rising Australian property prices. But the setup this time has three features that previous cycles did not:
1. No rate cuts available. The RBA is hiking into the slowdown. Development finance is getting more expensive, not cheaper. Borrower capacity is being compressed. Unlike COVID or the GFC, there is no prospect of emergency rate cuts flooding the system with cheap money.
2. A potential US recession. If the world's largest economy enters recession while Australia's inflation remains sticky, global capital flows into Australian real assets will slow. Commercial property and development funding are particularly exposed to this dynamic.
3. Structural disruption to professional incomes. AI-driven displacement of white collar roles may erode the borrowing capacity that supports premium residential markets over the next 12-24 months. Whilst this is not certain and there are arguments for jobs to fall on a far lesser scale, just the threat of this effect can have a meaningful impact on prices.
Risk assets are repricing. Equities have sold off 5-13% depending on the index. Bond yields are volatile. Credit spreads are widening. Real assets with income streams - well-located property with strong tenant demand - tend to hold value through inflationary periods because rents adjust upward. The worst-performing assets will be those with long duration, no income, high leverage, and exposure to discretionary white collar tenants.
The oil price you see on the news is not the oil price that's driving your costs. Physical crude is $16-30 above futures. If the Strait of Hormuz stays closed, futures will catch up.
First-order effects (fuel costs, consumer spending) are already here. Second-order effects (construction costs, food prices, inflation) are 4-12 weeks behind. Third-order effects (builder margins, housing supply, employment) will define the rest of 2026.
The RBA is hiking, not cutting. Stress-test against a 4.85% cash rate and no rate relief until 2027. The policy rescue that drove property recoveries after COVID and the GFC is not available this time.
The US is showing early signs of stagflation. If it tips into recession, Australian markets will not be immune. Global capital flows, risk appetite, and the AUD will all be affected.
AI displacement of white collar roles is a 12-24 month risk that is not yet priced into the property market. If professional incomes are disrupted at scale, premium residential markets and commercial office assets are most exposed.
History still favours supply-constrained markets over a 3-5 year horizon. But the path there will be harder than the bulls expect. Stress-test everything against $130-150 oil, a 4.85% cash rate, a 10-15% construction cost increase, and a 15-20% reduction in white collar hiring. If your feasibility still works under those assumptions, you're positioned well. If it doesn't, you need to know that now.
Trump's ultimatum expires Wednesday morning our time (assuming it doesn't change again). If the strait doesn't reopen, the gap between physical and futures oil will narrow - upward. Every week of closure erodes global GDP. This is the single most important variable in macro right now.
All four major banks expect a hike to 4.35%. But the real question is how much weight the RBA will give to the speedy deterioration in consumer sentiment and the coming drop in activity levels. My personal opinion is that higher rates can help anchor inflation expectations to some extent, but collapsing demand can do so even more effectively...maybe rates will not need to match market pricing.
Builder failures were already elevated coming into 2026. The oil-driven cost surge will push marginal operators over the edge. Watch ASIC data over the next quarter for an acceleration. Every insolvency removes capacity from an already constrained pipeline.
No pitch. Just a conversation about your situation.
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