Petrol prices likely to stay around $2 a litre amid OPEC cuts
Petrol prices are expected to ease after surging to a 12-month high, but OPEC cuts and a weak dollar are likely to keep prices near $2 a litre.
Petrol prices are expected to ease after surging to their highest level since last year’s record prices caused by Russia’s invasion of Ukraine, but cuts to oil supplies and a weak Australian dollar are likely to keep prices elevated over the coming months.
Supply cuts by major oil-producing nations, strong global demand and a scheduled increase in the fuel excise have pushed petrol prices higher in recent weeks, with unleaded fuel in Sydney, Melbourne and Brisbane rising to more than $2.20 a litre this week.
Volatility across the traditional fuel cycle has also been prevalent across the country, with unleaded prices in Adelaide shooting up by more than 40c a litre on Monday to an average $2.15.
NRMA spokeswoman Katrina Usman said that while a number of factors had pushed petrol prices to their highest level in more than 12 months, they had reached their peak in the current fuel price cycle and were likely to fall heading into next week.
“The global oil market is extremely volatile and recently some of the factors which have been contributing to higher prices have been OPEC continuing to keep oil production tight, the ongoing conflict in Ukraine and a falling Australian dollar,” she said.
“We’re seeing the highest average prices in more than 12 months.
“But in Sydney, for example, we’re now nearing the top of the cycle, and if the terminal gate price stays close to what it is now, we can expect prices to start to fall from next week, with prices reaching the mid-$1.80s at the bottom of the cycle in the next three to four weeks.”
Petrol prices reached record highs of more than $2.50 a litre last year in the wake of the Russian invasion of Ukraine, which cut off about 10 per cent of the world’s oil supplies.
The surge in prices led to a temporary halving of the fuel excise by the former Morrison government to help Australians with cost of living pressures.
After it was reinstated last September, a scheduled indexation of the fuel excise rate last week resulted in it being bumped up from 47.7 cents a litre to 48.8 cents, adding more pain at the pump for motorists.
But the main driver of the recent surge in prices has been higher crude oil prices, which hit their highest level since January this week, nudging $US88 a barrel amid production cuts from OPEC+ nations and a brighter outlook for the US economy.
Commonwealth Bank energy analyst Vivek Dhar said there were signs the OPEC nations, and in particular Saudi Arabia, were targeting a higher oil price heading into the end of the year, and that meant domestic petrol prices were likely to remain elevated.
“Right now they’re (Saudi Arabia) voluntarily cutting 1 per cent of global supply based on their view that the markets are unbalanced,” he said.
“The fact that they’ve continued that voluntary cut into September, despite oil prices lifting above $US80 a barrel, really opens the door that maybe they’re targeting a higher oil price.
“All in all we’re talking, say, $US90 a barrel, and our forecast for the Australian dollar is that it will fall to about US64c by the end of this year. You put those two together, and we’re talking somewhere between $2 to $2.10 per litre as a peak in the fourth quarter.”
Mr Dhar said the recent surge in petrol prices was “not justifiable” based on current wholesale prices, and was more a reflection of the “vagaries” of the fuel price cycle.
“What we’ve seen in Adelaide, and it’s also occurring in places like Melbourne, Sydney, and Brisbane, is that you’re seeing signboards recording $2.24 a litre or thereabouts - a very sharp increase from where it had been trading,” he said.
“Our view is those prices are not going to stick, they’re not justifiable in terms of looking at the wholesale price. The wholesale price over the past week has been pretty constant around about $1.82. You add on something like 13 or 14 cents in terms of gross margin and you’re getting up to around about $1.95.
“That seems the more appropriate price and the area where the price is likely to settle in the near term.”
Some analysts believe oil prices could head towards $US100 a barrel by the end of the year, and even higher next year if global demand remains strong.
Morgans Financial chief economist Michael Knox said oil prices could hit close to $US120 by the first quarter of next year.
“We now have a level of demand estimated by the International Energy Agency of 103 million barrels of oil a day and supply of only 101 million barrels - what that tells us is we’re short 2 million barrels a day,” he said.
“What we anticipate is that the deficit will ease slightly to 1.4 million barrels a day next quarter but that’s still a very tight supply situation.
“What our model tells us is that the equilibrium price should go up to about $US94 a barrel in the third quarter and rise again to $US118 a barrel by the time we get into the first quarter of next year.
“But what you’ve got here is a period of very high volatility in the oil market ahead of us.”
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