Russia’s war fuels fears of $2.50 petrol prices in Australia

Australian petrol prices could reach $2.50 a litre at the bowser in coming weeks as the price of crude oil soars because of escalating international sanctions against Russia for invading Ukraine.

The United States and United Kingdom announced on Wednesday they would ban the importation of all Russian oil to target a top source of income to President Vladimir Putin’s economy.

Petrol prices are set to rise again as Russia faces increased oil sanctions. Credit: AP Photo/Alastair Grant

The price of crude oil, the natural resource that is processed and refined into transport fuels including petrol, has smashed the $US100-a-barrel mark to peak at $US139 earlier this week, the highest level since 2008.

Petrol cost as much as $2.20 at some locations in Sydney on Wednesday, and reached $2 at Melbourne service stations. The price of petrol is adding to cost-of-living pressures on Australians just weeks out from the federal election, with inflation rising at the fastest rate in years.

Graeme Bethune, chief executive of Adelaide-based consultancy EnergyQuest, said the expectation of increased oil demand as international air travel ramps up after the pandemic-driven downturn was contributing to Australia’s prices. “I wouldn’t be surprised if they got to $2.50,” Dr Bethune said.

Oil prices are being driven up by global uncertainty over the rolling sanctions being placed on Russia, which accounts for about 11 per cent of the world’s supply of crude oil.

Fuel suppliers and oil refiners around the world, including Australia’s Ampol and Viva Energy, are also shunning Russian oil.

Curtin University energy economist Roberto Aguilera said $2.50 petrol was “not out of the question”, but he expected pain at the bowser to start easing by the middle of the year as oil-producing nations worldwide increased production in response to high prices.

“That will mostly come from the US, but also most of the important oil-producing regions of the world, including the Organisation of Petroleum Exporting Countries, have an agreement in place to steadily raise the monthly production through 2022,” Dr Aguilera said.

“The result of all this should be some downward pressure on oil prices and consequently on petrol, which should eventually help bring relief to drivers.”

US President Joe Biden’s move is politically dicey, partly because it could further shake global energy markets and cause petrol prices to soar at a time when many Americans are already struggling with record inflation rates and rising prices on everything from fuel and food to rent and furniture.

Petrol prices in the US hit a record high on Wednesday, reaching an average price equivalent to $1.52 per litre in Australia.

Biden said the US would also boycott Russia’s liquefied natural gas and coal in a bid to thwart Putin’s “war machine” and further punish him for his unprovoked attack.

Speaking at the White House on Tuesday morning (Wednesday AEDT), Biden told Americans that while “freedom would come at a cost”, he would do everything he could to minimise the impact on consumers. He also urged energy companies not to use this decision as an opportunity to profiteer or price gouge.

“Americans have rallied to support the Ukrainian people and made it clear we will not be part of subsidising Putin’s war,” he said.

“Here at home Putin’s war is already hurting American families at the gas pump. Since Putin began his military buildup on Ukrainian borders … the price of gas at the pump in America has gone up 75 US cents ($1.03), and with this action is going to go up further.”

The announcement represents a departure from Biden’s foreign policy strategy: for the US to sanction Putin in complete lockstep with its NATO allies. He said the US could move forward with such a ban given it was less reliant on Russian energy than some European nations, but he insisted the West remained united in its purpose against Putin.

“We can take this step when others cannot,” Biden said of his decision. “We’re working closely with Europe and our partners to develop a long-term strategy to reduce their dependence on Russian energy as well.”

UK Prime Minister Boris Johnson said the UK will move away from dependence on Russian oil throughout this year.

“Working with industry, we are confident that this can be achieved over the course of the year, providing enough time for companies to adjust and ensuring consumers are protected,” Johnson said.

High petrol prices don’t drive many people to give up their cars, experts said, but if they remain elevated for many months enough motorists may switch to other forms of transport to ease traffic congestions.

Grattan Institute transport and cities director Marion Terrill said persistently high petrol prices could reduce the number of motorists on the road by about 2 per cent.

“Once the road system gets congested even just one more car makes a big difference,” Ms Terrill said. “You notice it in school holidays – the reduction in traffic is not that big, but it’s a lot quieter on the road.”

AMP chief economist Shane Oliver said on Wednesday the high petrol prices would add about $15 a week to the average Australian household’s petrol bill since December.

“If sustained, that’s a big $750-a-year hit to real household spending power, to which must also be added all the indirect ways higher oil prices boost prices,” Dr Oliver said.