Oil price surge to hit motorists, shoppers and maybe mortgages

Global energy shortages have pushed up prices at petrol pumps and are set to hit Australians’ cost of living in many more ways.

Oil-producing countries are not keeping up with demand as economies open up. Picture: iStock

Surging oil prices are set to flow through to household hip pockets in more ways than most Australians think.

From petrol and household goods to Christmas toys and home loan interest rates, every sector of the economy will be impacted as 2020’s ultra-cheap oil becomes a distant memory.

In the past 18 months crude oil has jumped from $US13 a barrel to $US83 a barrel, pushing petrol prices in most capital cities above $1.80 a litre this month to 13-year highs

On top of rising demand for crude oil as economies bounce back from Covid, global gas and coal shortages are causing a further shift to oil. Some economists have warned Australian pump prices could reach $2 by Christmas, increasing costs for couriers and transport companies and flowing through to retailers and consumers.

KPMG chief economist Brendan Rynne said road transport costs affected every industry sector in Australia.

“Petrol prices are a universal cost through all of the elements of the economy,” he said.

KPMG chief economist Brendan Rynne says winter is coming in the northern hemisphere and demand for oil will rise.

“Transport companies run literally on the smell of an oily rag. Their ability to withstand a profit shock – particularly following the Covid period – is questionable.”

Dr Rynne said oil prices rises typically took two weeks to flow through to retail prices, and in the past fortnight oil had climbed another 5 per cent.

“It’s going to be pushing $2 – the delay between market pricing and retail pricing suggests there’s still some upward pressure.”

Northern hemisphere demand drives oil prices, and Dr Rynne said “winter is coming – people there need to restock their gas and oil supplies”.

Higher consumer price inflation (CPI) could prompt the Reserve Bank of Australia to raise official interest rates sooner, although Dr Rynne said fuel oil prices could also work like a tax and reduce demand for goods and services.

The cost of living is also being pushed higher by rising shipping container rates, supply chain bottlenecks and rising consumer demand as the world emerges from the pandemic.

BetaShares chief economist David Bassanese says financial markets expect rate rises next year.

CommSec chief economist Craig James said since April last year the cost of filling a 70-litre car with petrol had jumped $56.

“Economies are reopening at a faster rate than producers can lift supply,” he said.

BetaShares chief economist David Bassanese said the price rises would be reflected in higher official inflation data released in the coming months.

“Demand is rebounding fast and supply hasn’t been able to catch up,” he said.

“Anyone who has gone to the shops will notice that prices have gone up.”

Mr Bassanese said more retailers might pass price rises onto customers during a “very strong Christmas shopping period” and this could help drive interest rates higher before the Reserve Bank’s 2024 forecast for its first rate rise.

“The market is pricing in two interest rate rises late next year – there is a massive discrepancy between what the Reserve Bank is saying and what the market thinks,” he said.

Originally published as Oil price surge to hit motorists, shoppers and maybe mortgages