RISING oil prices might mean fatter profits for the State’s oil producers but there’s a downside for the broader community, with business and consumers set to foot the bill at the fuel pump.
RISING oil prices might mean fatter profits for the State’s oil producers but there’s a downside for the broader community, with business and consumers set to foot the bill at the fuel pump.
The impact on business is likely to be more severe, with the sting felt through increased costs and a decline in spending as general prices increase.
Further, exporters in Western Australia will feel the pinch as increased oil prices dull economic growth and impact on our major trading partners.
Last week, the price of crude oil hit a 13-year high of $US40 per barrel – a price not seen since October 1990 when Iraq’s invasion of Kuwait sent world oil prices into a spin.
Instability in the Middle East, increased demand from countries such as China, and the threat of terrorism were factors contributing to the increase in oil prices.
Higher fuel costs, already being felt in the US, could mean more than $1 a litre at the pump for WA drivers.
For the time being, however, Western Australia is being shielded from petrol price increases due to the price war resulting from the entry of major grocery chains Coles and Woolworths to the market.
Motor Trades Association of WA executive director Peter Fitzpatrick said consumers and business should get used to the idea of higher prices in the longer term.
“At the pump the fuel price is staying artificially low because of the effects of the major grocery chains that have entered the market,” he said.
“Franchisees are paying $A1.03 for ULP [unleaded petrol] wholesale, and they are being subsidised about 10 or 11 cents per litre by the oil companies.
“The fuel price should be well over $A1 if it was reflecting international prices.
“However, the speculation is that the grocers are selling fuel at a loss, and they can’t sustain those prices.”
Chamber of Commerce and Industry chief economist Nicky Cusworth said increased oil prices and the flow-on effect to fuel prices were not the only factors likely to impact on business.
Domestically, the value of the Australian dollar was also having an effect on business and, in turn, consumers could expect higher transport and general costs.
“Taken in isolation, the oil price rise is bad news due to high input costs, slower economic growth and increased fuel costs,” Ms Cusworth said. “However, looking at the bigger picture, the lower exchange rate may help exporters remain competitive.
“Whereas for most of the last two years, when we’ve seen an increase in oil prices, the effect on Australian consumers has been mitigated to some extent by the exchange rate. But, as we’ve recently seen, the oil prices increasing and the exchange rate falling is going to put additional pressure on prices for WA consumers.”
Chamber of Minerals and Energy chief executive Tim Shanahan said with the oil price linked to the price of diesel, rising industry costs would be an added burden.
Air travel in and out of the State has already been hit, with Qantas announcing this week it had introduced a surcharge of $6 for domestic flights and $15 for international flights in response to rising fuel prices. At the time of printing, there was speculation surrounding other airlines’ response to this move.
Qantas CEO Geoff Dixon said the US dollar price of jet fuel now was almost 60 per cent higher than a year ago, $US44 a barrel compared with $US28 a barrel, which had significantly increased the cost to business.
