Australian motorists may soon have to dig a little deeper to pay for their fuel after global prices rose to fresh seven-year highs amid mounting worries about a Russian invasion of Ukraine.
Oil prices rose more than 2% overnight, with benchmark indices near the symbolic US$100 a barrel mark. Brent crude, for instance, rose 2.2% to US$96.48 in US trading before easing back slightly in Asia on Tuesday.
Australian’s retail petrol prices are already at record levels, averaging 176.9 cents a litre in the week to 13 February, according to the Australian Institute of Petroleum.
Peter Khoury, the head of media at NRMA in New South Wales, expects average prices to rise to 180 cents a litre or higher in coming days, noting Brisbane prices had already reached 192 cents for unleaded.
“It’s not going to be pretty,” he said. “It’s going to continue to go up.”
Quite apart from any immediate disruptions to supply should Russia invade Ukraine, the likelihood of heavy sanctions being slapped on one of the world’s biggest oil producers would likely push oil prices higher.
“There’s some real concern now that oil is going to breach $US100 per barrel,” Khoury said. “We’re hoping the average in Australia doesn’t hit $2 a litre but we’ll be monitoring it.”
Robert Rennie, the head of Westpac’s financial markets strategy group, said “the market is pretty much 100% Ukraine-dependent near term”.
“If we do see any further developments there, I can easily see US$120 for Brent,” he said.
Singapore, where most of Australia’s fuel imports are sourced, is a good guide to what’s coming since there’s typically a week’s lag between changes in that market and Australia’s.
Singapore’s current gasoil price “tells you to expect to be paying $1.70-plus on average in the next week or so on a wholesale basis” for fuel, Rennie said.
Rennie’s colleague, senior economist Justin Smirk, said that should crude prices be sustained at US$120 per barrel then average pump prices around Australia could get as high as $2.07 a litre.
If such levels lasted for some weeks “this would be significantly more inflationary than what we currently have, pointing to upside risks to our [first and second quarter] consumer price index forecasts”, Smirk said.
However, any post-tension correction would likely even be larger “so there could be an even larger deflationary pulse in the second half of the year as petrol prices come off the highs”, he said.
NRMA’s Khoury says drivers’ best chance for relief is to research to locate their nearest relatively low-cost service station.
NRMA has its own app for NSW, as does its counterpart in Victoria – RACV. For Queensland drivers there is RACQ’s version, with similar offerings in other states.
Governments, too, provide options, such as NSW’s fuel check, for drivers hunting for lower-priced fuel.
Brent and other oil prices were higher a decade ago, topping $US125 a barrel in March 2012. During those years, however, the Australian dollar was much closer to parity if not higher with the US dollar, buffering local motorists from some of the impact.
The Australian dollar is now trading a bit above 70 US cents although market economists mostly predict it will strengthen towards 80 US cents by the year’s end – provided there is not some major disruption to the global economy.
Australia’s fuel demand has grown during the Covid pandemic save for a brief drop during the first wave when big users were disrupted, according to the latest energy audit published by the Australian National University.
“Bulk diesel is used in a wide variety of industries, including agriculture, mining, construction and public transport, all of which have been relatively little affected, in terms of their level of activity, by the pandemic,” the audit said.
Frank Jotzo, the director of ANU’s Centre for Climate and Energy Policy, said the threat of supply disruptions should give extra impetus to efforts to decarbonise economies since that would typically have the added advantage of cutting import dependence.
“A zero-emissions energy system means that far more of overall energy demand gets fulfilled locally,” Jotzo says. “In particular, decarbonisation means that oil for cars and trucks gets replaced with electricity, and that most electricity is generated from local renewable power rather than coal and gas which in many countries is imported. Similar shifts will take place in industry.
“This is particularly relevant for Europe which is a large net importer of all fossil fuels,” Jotzo said. “Well over half of the EU’s total energy is imported. All European countries except Norway are net energy importers.”
North-east Asia too relies heavily on energy imports, and while Australia is one of the world’s biggest exporters of coal and gas, it also imports about 37% of the total energy used, Jotzo said.
“Australia’s ongoing domestic reserve of diesel and petrol is relatively small, and refining capacity is limited, so we are potentially vulnerable to disruptions in shipping fuels to Australia,” he said. “The more transport is electrified and thereby powered by local energy, the less of a risk this is.”
