Australian Economy

As fuel tax cut ends, motorists face petrol price tug of war

The increase at the petrol bower comes despite a 9 per cent fall in Brent crude from about $US93 ($143) at the start of the month to about $US84 in early week trade, sparked by fears of a broad global economic downturn.

Commonwealth Bank commodities analyst Vivek Dhar said financial markets were weighing the possibility of a global recession, which would prompt both demand and prices to slump.

“A synchronised economic slowdown is expected across the world’s major commodity consumers,” Mr Dhar said. “Most of that can be attributed to the forecast of weaker economic growth from higher interest rates.”

But working against lower prices is tropical storm Ian off the Florida coast. If that develops into a hurricane and disrupts supplies of WTI oil, it will push prices higher, according to CommSec senior economist Ryan Felsmann.

Other pressures such as European countries switching their energy mix from gas to oil ahead of the northern winter due to supply constraints would also add upward pressure on prices. Meanwhile, the slide in oil prices could also force the global oil cartel OPEC to intervene in the market and stabilise prices.

Mark McKenzie, chief executive of the Australasian Convenience and Petroleum Marketers Alliance, said the current gap between oil prices and retail prices was largely due to the stage of the capital city discounting cycle.

“We’re at the top point of the cycle, so we should start to see discounting occur again,” Mr McKenzie told ABC Radio. This would flow through in coming weeks and partially offset the expiry of the 22¢ a litre fuel tax cut.

How retailers would respond, particularly in competitive city markets, was “almost impossible to predict,” he added.

The falling Australian dollar is working against motorists. Westpac economist Justin Smirk said a 1.3 per cent increase in petrol prices was the “rule of thumb” for a 10 per cent fall in the Australian dollar against the greenback, since oil contracts are usually priced in US dollars.

The local currency was buying US64.8¢ on Tuesday, down about 5 per cent from its September peak of $68.8¢. If maintained over the month, that would also add about 0.65 per cent to the price of petrol in October.

Ahead of the expiry of the fuel tax cut, Treasurer Jim Chalmers put retailers “on notice” and ordered increased monitoring by the competition watchdog to punish price gouging.

A steady fall in global oil prices since July has improved the mood of Australian consumers. Consumer confidence increased by 2.1 per cent last week, reaching its highest level since late May.

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