Petrol prices could top $2.50 a litre

Weekly oil market update

• Last week, the benchmark Singapore gasoline price rose by US$7.29 or 5.9 per cent to an 8-year high of US$130.81 a barrel (highest since February 24, 2013). In Aussie dollar terms, the Singapore gasoline price lifted by $10.46 or 6.2 per cent to a record high of $178.31 a barrel or 112.15 cents a litre.
• Today, the wholesale or Terminal Gate Price (TGP) price sits at a record 198.2 cents a litre, up by a massive 19.4 cents from the previous week. Since the low on December 8, 2021 – a space of just three months – the wholesale petrol price has risen by a whopping 57 cents a litre, according to Australian Institute of Petroleum (AIP) figures.
• According to MotorMouth, the daily retail average unleaded petrol price hit record highs across all capital cities in the past week. The AIP will publish last week’s pump prices tomorrow due to the public holiday in Canberra.

Why have Aussie petrol prices hit record highs?

• Aussie retail unleaded petrol prices continue to hit record highs, and national pump prices could lift to $2.50 a litre in coming weeks if Russia’s “special military operation” in Ukraine becomes protracted or intensifies. Oil prices have soared on fears that Western sanctions on Russian crude oil exports will tighten supplies at a time when crude demand is strengthening. Russia is the world’s second largest crude oil exporter behind Saudi Arabia.
• Prior to the escalation in geo-political tensions, oil market traders were focused on supply-demand imbalances in the crude market. Oil prices were already lifting on expectations that crude demand will outpace supply this year, as the global economy rebounds from Omicron virus disruptions.
• The International Energy Agency (IEA) has raised its 2022 crude oil demand forecast. The IEA expects global oil demand to expand by 3.2 million barrels per day (bpd) this year, reaching an all-time high of 100.6 million bpd. And OPEC+ has also warned that world oil consumption could surpass its demand forecasts this year as international travel gathers pace. This could place a strain on crude inventories, which are already at multi-year lows.
• The pickup in demand has occurred at a time when crude oil production remains restrained by OPEC and its allies. At their most recent March meeting, OPEC+ oil producers agreed to extend the program of gradual supply increases, lifting output quotas by just 400,000 barrels per day. And output by OPEC members in January and February was below a rise planned under a deal with allies, according to a Reuters survey.
• Oil prices whipsawed last week with a US ban on Russian crude imports and the UK’s gradual phase-out of Russian crude adding to heightened volatility in the oil market.
• But the international benchmark Brent price fell by more than US$30, off its 14-year high of US$139.13 a barrel earlier in the week. Oil traders later discounted the risk of further market tightness after European politicians decided not to follow the lead of their US and UK counterparts in shunning Russian oil. According to Refinitiv, Russia exports about 3 million barrels per day of crude to Europe’s OECD countries, with around 1 million bpd of Russian crude flows currently estimated to have been disrupted.
• And news on March 11 that the US and Iran had suspended their attempts to negotiate a nuclear deal is expected to provide support for oil prices in the near-term. Should a deal not be reached, US sanctions will continue to hinder Iran’s exports, while increased Iranian tensions with its Middle Eastern neighbours could yet increase the odds of oil disruptions caused by militant actions.
• Of course, Aussie petrol prices are influenced by many factors, including changes in global oil production, movements in international crude oil prices, Aussie dollar fluctuations, regional market competition, pricing decisions made by wholesalers and retailers and government taxes.
• Arguably the biggest impact on what Aussie motorists pay at ‘servos’ is the product cost (around 45 per cent of the total cost of fuel), which is heavily influenced by the movement in international crude oil prices. Australian oil production has been in decline since 2009. Australia is now a net importer of oil, with just 12 per cent of refinery feedstock produced domestically, according to Geoscience Australia.
• Therefore, Australia has become increasingly dependent on Asian markets, such as Singapore and South Korea, for shipments of refined petroleum product, which together account for over half of all imports (source: AIP). The refined product is transported by pipeline to storage facilities and terminals with tankers delivering the petrol to ‘servos’ around Australia.
• The Singapore price of unleaded petrol, known as Mogas 95 Unleaded is the key pricing benchmark for Australian petrol and the biggest influence on pump prices. Changes in this price typically take a fortnight to work their way through supply chains in major Aussie capital cities and even longer in regional areas due to transportation requirements. Last week, the Singapore benchmark gasoline prices jumped to an 8-year high of US$130.81 a barrel last week. And in Aussie dollar terms prices hit a record high of $178.31 a barrel.
• Other important influences on the pump price includes fluctuations in the Aussie dollar and retail petrol price cycles in larger capital cities. But with east coast “discounting” cycles very shallow at the moment, with wholesale costs remaining elevated, attention is now focused on both terminal gate prices and government taxes.
• In fact, the unleaded Australian terminal gate or wholesale price is at a record high of $1.98 a litre today. Add a gross retail margin of 12-13 cents a litre and the national average price is likely to be near $2.10 a litre. And when averaging daily retail unleaded petrol prices across all capital cities using MotorMouth data today, CommSec estimates that the price is closer to $2.15 a litre.
• In fact, MotorMouth records the following average retail prices for unleaded fuel today: Sydney 216.5c/l (cents a litre); Melbourne 212.5c/l; Brisbane 218.3c/l; Adelaide 220.0c/l; Perth 208.7c/l; Hobart 219.9c/l; Darwin 206.4c/l and Canberra 208.6c/l.
• In the more competitive east coast fuel markets today, unleaded pump prices are as high as 221.9c/l in both Sydney and Brisbane, and 219.0c/l in Melbourne today. Broadly, pump prices are at or near record highs in all capital cities.
• With cost of living pressures growing, Aussie household budgets are being stretched to the limit. Unleaded pump prices comprise around 40 per cent government tax, according to the Australian Competition and Consumer Commission (ACCC).
• Ahead of the federal budget on March 29, the federal government’s $19 billion fuel excise revenue could come into sharper focus. All retail fuel in Australia incurs a 10 per cent GST and around 44 cents a litre in government fuel excise. While a temporary reduction in fuel taxes would provide some relief to households, it would also reduce government revenue that would need to be replaced, so would only offer a ‘band aid’ solution.
• Commonwealth Bank (CBA) Group commodity strategists forecast the Brent crude oil price will average US$110 a barrel in the second and third quarters of this year. But prices could climb as high as US$150 a barrel from a prolonged war in Ukraine or short-term escalation of the conflict, potentially pushing up Aussie unleaded petrol prices to near $2.50 a litre.

Weekly oil market update

• Oil posted its first weekly loss since Russia invaded Ukraine. Last week, the Brent crude oil price fell by US$5.44 or 4.6 per cent to US$112.67 a barrel. And the US Nymex crude oil price dropped by US$6.35 or 5.5 per cent to US$109.33 a barrel.
• Last week, the benchmark Singapore gasoline price rose by US$7.29 or 5.9 per cent to an 8-year high of US$130.81 a barrel (highest since February 24, 2013). In Aussie dollar terms, the Singapore gasoline price lifted by $10.46 or 6.2 per cent to a record high of $178.31 a barrel or 112.15 cents a litre.
• Today, the wholesale or Terminal Gate Price (TGP) price sits at a record 198.2 c/l, up by a massive 19.4 cents from the previous week. Since the low on December 8 – a space of just three months – the wholesale petrol price has risen by a whopping 57 cents a litre.
• Last week, motorists in major capital cities such as Sydney, Brisbane and Adelaide were hit by the ‘double whammy’ of a lift in the wholesale price and an end to the discounting cycle. Sydney average pump prices rose by 35 cents a litre.
• MotorMouth records the following average retail prices for unleaded fuel today: Sydney 216.5c/l; Melbourne 212.5c/l; Brisbane 218.3c/l; Adelaide 220.0c/l; Perth 208.7c/l; Hobart 219.9c/l; Darwin 206.4c/l and Canberra 208.6c/l. All pump prices are at or near record highs today.
• Please note that due to the Canberra public holiday yesterday the Australian Institute of Petroleum (AIP) weekly petrol price data is unavailable. The data will be updated on today.