Global oil prices are at their highest levels since 2014 with Brent crude, one widely cited gauge, topping US$90 (A$127) a barrel on Wednesday.
Tension over a possible Russian invasion of Ukraine is obviously one factor stoking energy costs.
But what do the higher prices mean for Australians and is there much we can do about it?
What are petrol prices doing in Australia now?
As the ABS noted last week when releasing December quarter consumer price index data, automotive fuel was “the most significant” contributor to the 3.5% annual inflation rate.
Fuel prices have risen for six quarters in a row, with the 32.3% annual increase in 2021 the biggest since 1990. The national average price during the latest quarter also reached a record $1.64 a litre for unleaded petrol, the ABS said.
Perhaps not surprisingly for an internationally traded commodity that underpins economies – and that nations have gone to war over – the agency says fuel has often been a major contributor to price changes.
And sometimes, it’s a drop.
At one point early in the Covid pandemic, oil prices were briefly negative, but nobody reported service stations in Australia paying motorists to take away their petrol.
On the skids, for now
Still, Australians would be right to wonder how local fuel prices are set.
Despite scary newspaper headlines warning prices are likely to remain sky-high for a while, the average fuel cost in most capital cities has actually been on the slide in the past week or so.
That, at least, is according to the Australian Competition and Consumer Competition, which has copped criticism over the years for not finding consistent price collusion by service stations.
By their measure, average petrol prices peaked in Sydney more than a week ago at just under $1.80 a litre, and are now a few cents cheaper.
In Melbourne, they peaked two weeks ago, and are down about 10 cents a litre to $1.63 a litre. Perth has posted a drop of more than 20 cents a litre since mid-January with petrol recently selling for just over $1.55.
“It’s certainly the case that they’re falling slowly in most of the capital cities that have price cycles,” Peter Khoury, a spokesperson for NRMA in NSW, says.
Khoury says how those cycles turn – and why prices can vary across suburbs by 30 cents or more on the same day for essentially the same product – can defy logic.
“Nowhere else on earth has this price cycle that we have in those capital cities,” he says. “It’s a very bizarre situation where we know [global] oil prices are going up but in a number of those capital cities, prices are currently falling because of the price cycle.”
Those recent falls aren’t likely to last, though, so now might be a good time to fill up. Since many drivers would do that every week or so, there’s little need for a prompt.
“When [prices] go back up, they’ll go back up to near-record highs,” Khoury predicts.
Darwin and Hobart are mysteriously left out of those cycles, as are most regional areas. Big distances preclude the option for many in remote areas of shopping around for cheaper prices.
Catherine Birch, a senior economist with ANZ, says regional folk typically devote a larger chunk of their income to fuel bills, as do low- to middle-income households. The effect of rising prices tends to get magnified for them.
“There’s no other way to get around than driving, so a lot of these people are more exposed than people who live in the cities, who can switch to public transport,” she says.
Not just Russia
Threat of Russian aggression towards Ukraine clearly adds to uncertainty about peace in general and energy prices in particular.
Russia supplies about a third of Europe’s gas and so there’s a bit of a scramble to secure energy, not least because winter can bring sudden spikes in orders from households and businesses seeking heat. Oil and gas prices tend to move in step.
But, as Birch’s ANZ colleagues note, demand was already on the rise as economies rebounding from Covid lockdown ran up against constraints on supply. Amin Nasser, head on Saudi Arabia’s Aramco – the world’s biggest oil producer – has lately joined those warning that suppliers have been under-investing in production.
Opec members such as Nigeria have struggled to meet increased quota levels, while the US has been lately topping up its strategic crude oil stockpiles.
As noted last week, investors tend not to be great prophets of geopolitical strife.
That said, economists like Birch are generally sanguine about the wider economic implications of fuel prices remaining high.
Fuel prices have tended to increase faster than average goods, as noted above, but the average household expenditure on fuel is not huge.
According to the ABS’s 2015-16 Household Expenditure Survey, on average, Australians spent approximately $2,300 on automotive fuel each year. While somewhat dated now, that outlay made up just 3.3% of a CPI basket.
Even with higher bowser prices, the fundamentals of spending and the outlook more generally are “actually looking quite strong”, Birch says.
Consumers have socked away $200bn in savings and Australia’s jobless rate is at a 13-year low of just 4.2%, leaving them relatively well-poised to absorb higher fuel bills.
Nor will the central bank be overly concerned – unless of course there’s a war – when its board meets next Tuesday for the first time in 2022.
“One of the questions RBA will be asking itself is, ‘will lifting rates earlier, do anything to address oil price inflation?’” Birch says. “I think on the whole the answer is going to be ‘no’, really.”
For those who can afford it, though, there is one way to dodge petrol price volatility.
“Over the longer term higher oil prices could also help accelerate the move away from oil” towards electric vehicles, she says.
“If we can … get the take-up in Australia rising more quickly, that would lower people’s exposure to oil and oil prices.”