Warning oil price hitting $US150 would punish Aussie motorists
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Oil prices could surge to $US150 a barrel, due to the impact of the Middle Eastern war, Australia’s largest bank has warned.
Commonwealth Bank of Australia economists said on Tuesday the global benchmark Brent oil price could jump to the figure over coming weeks due to projected shortages.
A key Saudi Arabia oil pipeline has been damaged and remains shut for weeks. Vantor via CNN
Concern about an impending worldwide energy shortage are growing following the Saudi Arabian government’s announcement a major oil pipeline will remain closed for weeks following Houthi attacks.
The kingdom’s East to West pipeline is vital for carrying some crude oil out of the Middle East by shipping it to the Red Sea rather than through the Strait of Hormuz, the narrow waterway through which about 25 per cent of the world’s oil supply passed before the US and Israel attacked Iran in February.
The CBA experts say its closure will force Saudi oil companies to send more shipments north via the Suez Canal to Asia and Australasia, increasing tanker rates as vessels now must spend more time at sea to transport the same amount of oil.
There are also other geopolitical factors playing out expected to put pressure on crude stocks, including growing oil imports by economic superpower China.
“This effectively means that instead of 40 per cent to 45 per cent of pre‑war flows through the Strait of Hormuz needed to keep global oil and refined product inventories unchanged, 65 per cent to 70 per cent of pre‑war flows are now required.
Industry estimates suggest even after a full reopening it will take two to three months for a significant share of oil flows to resume through the Strait of Hormuz. Razieh Poudat/ISNA via AP
“The sizable shift almost single‑handedly reflects the closure of the East‑West pipeline.”
But the CBA warns with US-Iran tensions around the Strait of Hormuz remaining high, a major recovery in tankers transiting the waterway remains a long way off.
The bank is now pointing to a growing likelihood global oil markets having five to 11 weeks of crude stockpiles, pushing prices higher.
Brent crude prices may have to jump to $US150 per barrel to force what energy economists describe as “uncontrolled demand destruction” to occur.
Simply put, it is where high prices force lower demand for emerging Asian economies. This occurred in 2008 when Brent prices hit about $US148.
What does it mean for Australian fuel prices?
Prices have been quick to rise across the country in past weeks with a renewal in fighting between the US and Iran in the Middle East.
With prices of petrol averaging about $2.20 per litre in capital cities and diesel about $2.55, there have been calls for excise relief to be reinstated.
The tax on petrol was briefly halved by 32 cents, and a reduced discount was in place between July and August, though this ended on August 2.
The NRMA says with diminishing chances of a peace deal being reached in the Middle East, volatility at the fuel bowser is the new norm.
“What we need to be looking at is an end to all the chaos; that is the Strait reopening without a 20 per cent surcharge or whatever the fee system is,” spokesperson Peter Khoury said.
“We want to make sure we stability in the Middle East, and until the Strait reopens there’s going to be volatility.”
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