Canberra: Australian fuel prices are expected to rise by a further 20-30 cents per litre in the coming weeks as the escalating Middle East conflict pushes global oil prices higher.
Brent crude has moved towards US$110 a barrel before settling above US$108 in late trading on September 11. The international benchmark has reached its highest level since mid-May as concerns over the conflict increase pressure on global energy markets.
Unleaded petrol prices in major east coast cities could rise from about A$2.10 (US$1.51)a litre to around A$2.30 (US$1.65) over the next couple of weeks. A rough market rule suggests every US$1 increase in the crude oil benchmark can add about 10 Australian cents to prices at the pump.
Diesel supplies are facing particular attention as higher crude prices add to broader energy market pressures. The oil surge also unsettled financial markets. Investors sold stocks and bonds as concerns over higher energy costs have increased expectations of prolonged inflation and elevated interest rates.
Donald Trump’s proposal to give every adult US citizen a US$5,000 dividend after the November midterm elections has added to concerns about the outlook for US government finances. The proposal is conditional on Republicans winning both chambers of Congress.
Financial markets also reflected the contrasting performance of US and Australian equities since the start of the US-Israel war on Iran at the end of February. The S&P 500 gained about 10 percent while Australia’s ASX 200 has fallen about 5 percent.
US bond yields moved towards 5 percent for the first time since 2007. Higher energy prices strengthened expectations that the US Federal Reserve may need to raise interest rates again. Australian markets have also been affected. The 10-year Australian government bond yield has climbed to 5.38 percent.
Markets are also increasing expectations of another interest rate increase by the Reserve Bank of Australia (RBA). Traders have priced in an 80 percent probability of a fourth rate hike on September 29 as economists warn of a new period of structurally higher interest rates following the Covid-era disruptions. Further movements in global crude prices could determine how sharply petrol costs rise over the coming weeks.
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