Oil hits $100 – will petrol prices skyrocket?

Soaring oil prices threaten to send Australia’s petrol prices through the roof – and the only thing holding it back is the strong Australian dollar.

In recent days crude oil prices in New York have threatened to break through the $US100 mark for the first time in history. The Singapore Mogas petrol price, which is the benchmark for Australian petrol prices, is already trading at $A108.

At the moment, petrol in Australia is selling for between $1.16 and $1.27 per litre in Australia’s biggest cities, with higher prices in rural and regional areas, but according to Greg Smith, research manager with the Australian Automobile Association, a decline in the dollar could see prices go much, much higher.

While a high Australian dollar makes it harder for our exporters and tourism operators to compete internationally, it does increase our purchasing power for imports.

Smith points out that between August 2006 and November 2007, while oil prices have gone from $US77 to US$98 per barrel, during the same period the Australian dollar has also gone up from US85c to US93c.

The difference in increase between the two is about 5c – and that’s just about exactly the increase in per-litre petrol prices during that time.

“If the trend continues, the price of fuel will continue to be offset by a strong Australian dollar. But of course the huge worry is then that the strong Australian dollar could drop at any time and that will mean higher petrol prices,” Smith says.

Because of its heavy reliance on liquid fossil fuels such as petrol, the logistics industry will be one of the first to feel the pain from any increase in petrol prices.

Melinda Buker, program manager with the Australian Logistics Association, says any increase in costs for logistics firms would quickly flow down the line to other sectors.

“Our industry is locked into this vulnerability to petrol prices,” Buker says. “Business does operate on very lean margins, so they can only absorb price increases for a short period of time before they have to pass them on to customers.”