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Reasons petrol so expensive, global oil deals, Reserve Bank’s dilemma

December 27, 20172K views0 comments

As the year draws to an end, it doesn’t look like motorists will get much relief, with petrol prices around their highest levels since January.

The most recent figures from the Australian Institute of Petroleum reveal unleaded petrol was retailing for 143.2 cents per litre in mid-December (on a national average weekly basis), about 12 percent higher than the start of the year when motorists were refuelling for 126.1c per litre, as a national average.

CommSec’s estimate is that the average person spends $229 a month on fuel, which is a $25 higher in the year to date.

“Given that filling up with petrol is the single biggest regular purchase that many families make, the lift in the price of petrol is one of the factors causing consumers to spend more cautiously,”Craig James, CommSec’s chief economist, said, according to ABC news.

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While petrol stations in sub-Saharan Africa’s largest economy, Nigeria,  gasoline is being sold 50 percent higher than the capped government price of 145 naira per liter ($40c/0.3 gallon) at this period.

Not only do higher petrol prices affect household budgets, they also make it more expensive for businesses to transport goods fruit, vegetables and other perishable items — which then gets passed on to the consumer.

In short, rising global oil prices have also increased the price of domestic petrol.

This week, oil rose to a 2.5-year high, with Nymex WTI crude oil trading just below $US60 a barrel — $US59.75 to be precise.

Furthermore, Brent crude has surged to $US66.73 per barrel.

“The two key reasons for the higher [petrol] prices are stronger global economic activity and restricted output by major oil producing nations,” Mr James said.

Mr James was referring to a deal made by the world’s largest oil cartel, the Organisation of the Petroleum Exporting Countries (OPEC) — of which Saudi Arabia, Iraq and Iran are its largest oil producers.

Almost exactly a year ago, producers from OPEC and non-OPEC countries (led by Russia) agreed to slash output by up to 1.2 million barrels of oil per day.

At the time, Russia’s energy minister Alexander Novak told reporters: “Today’s deal will speed up the oil market stabilisation, reduce volatility, attract new investments.”

This deal was an attempt to curb a global oil oversupply and lift prices, which had sunk to record lows.


Nymex oil sunk to as low as $US26.21 per barrel in February 2016.

This was a far cry from what it fetched more than four years ago — $US110.53 in September 2013.

Global oil prices began to plunge about 3.5 years ago after Saudi Arabia sharply increased its output, in a bid to drive higher-cost producers such as US shale firms out of the market.

But the tactic backfired as it sunk the revenues of oil-dependent economies like Russia, and Saudi Arabia itself.

It subsequently prompted the two largest crude exporters to begin their output-capping negotiations.

The OPEC and non-OPEC producers have since extended their output-cutting deal until the end of 2018.

However, oil producing nations have historically been notorious for non-compliance and exceeding production quotas so that remains a market risk going forward.

Aside from its impact on petrol, oil prices are one the factors which drive inflation or the cost of living.

“Barring a big lift in US production or ill-discipline by OPEC oil producers, oil prices look to remain near current levels in coming months and possibly edge even higher,” James said.

Higher fuel prices would boost inflation, which remains stubbornly weak at 1.8 per cent (on an annual basis), which is below the RBA’s target band.

However, this is a double-edged sword as higher petrol costs will put pressure on household spending.

The Reserve Bank is, essentially, caught between a rock and a hard place.

The RBA is unlikely to raise interest rates “anytime soon”, James said.

The more optimistic economists believe an Australian rate hike will happen in the second half of 2018.

But many others have forecast it would be more likely to happen in 2019.

The government and the Nigerian National Petroleum Corp. are working to address the issue “as quickly as possible,” Osinbajo was cited as saying in a statement emailed by his office on Monday. “People have gone through a lot of pain and anguish in the past few days, and that is deeply regretted.”

Fuel shortages in Africa’s biggest oil producer have hampered transport and economic activity, though, Emmanuel Kachikwu minister of state for petroleum has attributed the situation to a delivery gap between the country’s state oil compamy, NNPC, and other suppliers.

Nigeria lacks adequate refining capacity and imports at least 70 percent of its oil needs. A government pledge to end these purchases and curb shortages over the next two years has attracted investors, including Africa’s richest man Aliko Dangote, who is constructing a 650,000-barrel-a-day refinery.

Saipem SpA and other international companies are in talks to rehabilitate the country’s three existing plants and ease supply.

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