Australian petrol prices set to surge before Christmas amid escalating Middle East tensions

Motorists are in for a miserable Christmas on the back of rising fuel prices.

On Friday, reports emerged the US would send a third aircraft carrier to the Middle East in an escalation of tensions with Iran.

Oil prices immediately jumped on this announcement, with Brent Crude above $US102 ($A147) a barrel.

These moves are yet to hit Australia, with Tapis Crude oil, which supplies the Asia Pacific region, slipping overnight to $US108 ($A156) a barrel, down from $US113 ($A163) three weeks earlier.

Diesel went up a further $US6 ($A9) a barrel to $US179 ($A259) a barrel.

Every $1 a litre increase in petrol prices adds about 1 cent a litre to how much motorists pay.

NatRoad chief executive Warren Clark said Australians should be bracing for pain across the economy, as rising fuel prices hits everything from groceries to presents this Christmas.

“Christmas is expensive already, but higher freight costs will find their way onto the price tag,” he said.

NatRoad urges the government to remove the 32.4 cents per litre heavy vehicle Road user charge to help ease the cost of living.

“We know dropping the road user charge had a positive impact right across the economy.

Canberra can’t control what’s happening in the Middle East, but it can control the tax it adds on top,” Mr Clark said.

When will prices start to rise?

NRMA spokesman Peter Khoury told NewsWire that while petrol prices had held steady recently, it had been a chaotic situation since the Middle East war began.

“The national averages have been pretty stable at around $2.38 a litre, while diesel is around $2.87,” he said.

“Having said that, the jumps overnight in crude, if they hold, then we will see that flow onto wholesale prices and unfortunately back at the bowser.”

Ahead of the long weekend, Mr Khoury urged motorists to shop around, as there were still discounts available.

“The wholesale price for unleaded went up 1.5 cents and diesel went up 0.5 cents, so they are not the sort of movements that would warrant a sudden jump in prices on the long weekend and we will be monitoring very carefully,” he said.

“Still, you should shop around before you fuel up. If you’re taking a road trip we especially encourage people to do that because there is every possibility that you will drive through somewhere that is cheaper.”

Mr Khoury said towns often had spreads of about 35 cents when comparing the cheapest and most expensive oil prices.

“Don’t just fuel up at the first place you see because there is every possibility around the corner there is somewhere cheaper,” he said.

Why are petrol prices so high?

Australians are paying more to fuel up their car due to the war in the Middle East and the blockage of the critical waterway the Strait of Hormuz.

At its peak, about 20 per cent of the world’s energy flows through the waterway, with both the US and Iran fighting for control of it.

Commonwealth Bank head of commodities and sustainability Vivek Dhar recently told NewsWire under a worst-case scenario, prices would surge should oil supply fall further and countries be forced to compete for oil.

“In terms of what we have seen in the past, to get that uncontrolled demand destruction we would probably need to see oil prices rise to $US150 ($A214) a barrel,” he said.

“Our outlook is this is the big risk we see.”

Mr Dhar is not forecasting oil prices to get to this point, as he believes both sides will want to make a deal.

He points out prices could rapidly fall towards $US70 ($A100) a barrel within weeks should a peace deal in the Middle East be signed.

But he said for months governments and energy companies had burned through the global supply, which had slumped from about 15-20 weeks down to an estimated 4-9 weeks, shortening the timeline for the US and Iran to reach a deal.

“We have gotten to the point where we can’t wait for the midterms (elections in November) because back then the view was the US would wait until the election,” Mr Dhar said.

“That won’t work given oil markets have gotten structurally tighter. We are going to have to see a movement towards a deal quite quickly.”

3.3 billion litres to arrive

Energy Minister Chris Bowen said Australia still had a strong pipeline of oil coming in despite the conflict in the Middle East.

Mr Bowen said Australia had 41 days’ worth of petrol supplies, 32 days’ worth of diesel and 30 days’ worth of jet fuel, with another 3.3 billion litres set to arrive next month.

“The situation is getting worse in the Middle East,” he said.

“We’re seeing that in the markets even overnight, and that will inevitably also flow through to Australia.

“However, the Australian government will remain firmly focused on ensuring our fuel security, just as we have for the last more than six months since this crisis began.”

Mr Bowen said Australia’s fuel supply remained secure, bolstered by strong relationships with international partners.