A falling Australian dollar and higher international oil prices could create a perfect storm to push petrol prices above $2 a litre, costing motorists and businesses hundreds of millions of dollars extra a year.
Although Australian Competition and Consumer Commission chairman Rod Sims warned petrol companies about inflated margins after the price at bowsers hit $1.90 a litre last weekend, the variable currency and fluctuations in oil price will have the biggest impact on whether prices top the psychological $2 a litre mark before the end of the year.
Four-year high prices
The ACCC’s latest petrol monitoring report in August found average petrol prices hit a four-year high in real terms of about $1.45 a litre in the June quarter in Australia’s largest cities of Sydney, Melbourne, Brisbane, Adelaide and Perth.
While average prices in the five largest cities fell in real terms between 2013-14 and 2016-17, they jumped back by 10 per cent in 2017-18. Since then they have jumped even further and now look like they will continue to creep towards $2 in the lead-up to Christmas.
The ACCC said the increase in international crude oil, due to cuts in production, as well as the lower Australian dollar were proving to be a lethal mix for consumers, flowing through to higher prices at the bowser for motorists. But current gross retail margins in the five largest cities are now 50 per cent above the 16-year average, according to the ACCC, as retailers use the global conditions to boost profits.
Things have been so dire there has been increased reports of motorists driving off with a full tank without paying, forcing some retailers to put new security measures, such as bowser locks, in place.
Brisbane – which less than a decade ago had some of the lowest prices in the country courtesy of the 9.2 cents a litre rebate before it was scrapped by the Bligh government in 2009 – continues to pay the highest petrol prices of the big five cities, even though Sydney in recent weeks has jumped above the pack at about an average $1.65 a litre.
$1.80 predicted
AMP chief economist Shane Oliver predicted petrol prices in Australia will head towards $1.80, but it would require a “global shock” to push it even higher, which would be exacerbated by further falls in the Australian dollar.
“I do think the Australian dollar will fall further and there’s more upsides in petrol prices,” Mr Oliver told The Australian Financial Review.
“If you pass through the rise in petrol prices in the last week or so, you probably saw another three or four cents in there. The odds are oil prices will at least likely to go above US$80 a barrel [West Texas] but that’s largely because of strong global demand and a lack of spare capacity and relatively low stockpiles. And threats to supply from Iran from sanctions.”
RACQ spokesman Paul Turner said Australian petrol retailers would be loathe to increase prices above the record $2 a litre threshold, fearing a dramatic backlash from motorists. But premium unleaded, the most popular fuel in Sydney, could soon crack $2 a litre.
“While regular unleaded prices aren’t expected to cross $2 per litre, Premium 98 prices could reach that mark,” Mr Turner said.
“However, we think it’s unlikely any Australian retailer will want to put $2 per litre for fuel on their price board, so we’d probably see prices go just under that.”
Mr Turner said they expected to see the Brent price hit $US100 a barrel (or $140 a barrel) which would lead to an average regular unleaded retail prices of about $1.75 – or a range of $1.65 to $1.85 depending on the stage of the local price cycle.
“But again, this is unlikely before the end of the year, but could happen in the first quarter of next year,” he said.
The surging petrol price could also put pressure on the Reserve Bank of Australia to finally increase interest rates.
Fitch Solutions Macro Research said a spike in global oil prices, as a result of the United States-directed Iranian sanctions and supply concerns in Venezuela, could lead to an acceleration in inflation.
“This could force the RBA [Reserve Bank of Australia] to hike rates at a faster pace to curb inflationary pressures,” it said in an investor note.
But Citi Research believes Brent prices could fall back below $80 a barrel, as more supply is brought on-line.
Extracted from AFR