With food prices rising due to the recent floods, big increases in energy bills even before the impact of the proposed carbon tax, big increases in other areas such as private healthcare and education, and the flood levy due to kick in soon, consumers already are in no mood for spending.
The major retailers reported extremely difficult trading conditions during the recent profit-reporting season. Any additional squeeze to the household budget from petrol will only make us even more cautious.
As Macquarie Bank senior economist Brian Redican explains, the price of petrol has a big impact on consumer sentiment.
”Fuel represents about 3 to 4 per cent of consumer spending, but when we see petrol go to $1.40 or $1.50 a litre, it has much more of an impact than that,” he says.
Whether it’s because we see petrol prices advertised every time we pass a petrol station or because petrol is a grudge purchase at the best of times, higher petrol prices make us feel disproportionately poorer.
But higher petrol prices are something we need to get used to, according to AMP Capital Investors chief economist Shane Oliver.
He says that even if the oil price falls back when the Libya situation eventually resolves – and the country’s 1.6 million barrels a day of oil production, worth 2 per cent of global output, is restored – it won’t fall back far.
Dr Oliver predicts global demand for oil will increase substantially over the coming year as the US economy recovers to add to continued China-driven growth in Asian oil consumption. This will keep a floor under the oil price not far from where it is now, according to his estimates. ”In many ways, we have just got there sooner rather than later,” he says. ”We are going to have to get used to petrol at $1.40 to $1.50 a litre.”
As an indication of what is to come, the oil price did not fall back far during the recent global economic downturn, so now that economic demand is picking up again, the oil price is set to ride higher from a much higher starting point.
The US is particularly important in the global oil market because its consumption is enormous – they still use oil for heating and for fuelling relatively large motor vehicles.
The US consumes 25 barrels of oil per year per person, against 15 barrels a year per person in Australia and three barrels a year per person in China, according to Dr Oliver. So the economic recovery in the US has a huge impact on the global supply and demand balance for oil. In time, China’s per capita consumption will also rise, putting further pressure on the global oil market.
The upshot, says Dr Oliver, is that we need to get used to oil at over $US100 a barrel.
St George Bank chief economist Besa Deda is not quite as pessimistic. She is looking for oil to be back at $US93 a barrel by the end of the year. Even so, she says it will have a negative impact on exporters and lead to an increase in business costs.
This is from increased transportation costs and increased input costs – oil is a key component in products such as plastic and polystyrene – and because a higher oil price will act as a brake on global economic growth. All up then, little respite ahead for motorists or retailers – but great news for Australia’s $28 billion-a-year oil and gas industry.
Tag : will fuel prices crash market, graph of market fuel, palm oil, food prices, global commodity price, global oil demand 2011, oil consumption 2011, oil prices, petrol prices February 26, 2011 For the latest updates PRESS CTR + D or visit Stock Market news Today
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