Why Aussie shouldn't worry about oil prices
Motorists in Australia could be spared from the worst of the fallout from the Middle-East, even as the price of the commodity surges.
Futures markets for Brent oil have spiked in recent days and are now buying $US75 a barrel, when it was just over $US65 this time last week.
It comes as tensions out of the Middle East flare up, after Israel undertook pre‑emptive attacks on Iran.
It said the strikes were aimed at eliminating Iran's nuclear program and ballistic missile capabilities, but the fears in the market are based on what Iran will do in response. The price of crude oil has spiked in recent days. Christian Gilles / NewsWire Credit: News Corp Australia
If it hits neighbouring oilfields or blocks the Strait of Hormuz, through which 20 per cent of the world's oil supplies are shipped, the price of the commodity could skyrocket.
But NRMA spokesman Peter Khoury said every time there were geopolitical tensions in the Middle East, there was an initial knee jerk reaction from the market before it stabilised.
He said Australian motorists should remain calm.
'What we are seeing here is an initial reaction to what has happened in the last few hours in Iran, but this is not uncommon,' he told NewsWire.
'Until you see those increases rise and they start occurring in the Asian markets then Australian motorists shouldn't be panicking.'
Mr Khoury said currently there were no issues that there will be supply issues.
'It is important that it is put into context – we get our oil from Asia, we get our refined fuel from Asia, so there's no need to panic,' he said.
AMP chief economist Shane Oliver wrote in his latest note fuel prices could be on the rise, but it would need the price of oil to remain elevated.
'Oil prices were already rising this month on signs of increasing risks and have spiked further – with the rise so far this month threatening a flow of around 12 cents a litre for Australian petrol prices if sustained at these levels,' he said. Australian motorists could be spared the worst of the fallout. NewsWire / Flavio Brancaleone Credit: News Corp Australia
Swissoquote Bank senior analyst Ipek Ozkardeskaya said the price of oil would either rise or fall depending on Iran's response.
'One scenario is de-escalation, which could bring oil back below $US70 per barrel, around the 200-day moving average, shifting the market's attention back to supply-demand dynamics, trade disruptions, and renewed pressure on Russian oil,' she wrote in an economic note.
'The other scenario is broader escalation, potentially pushing oil prices toward $US90 –$100 per barrel – hopefully only temporarily.'
Dr Oliver said the flow on impacts from this could see inflation spike over the short term.
'While petrol prices could spike on the latest Israel/Iran conflict, the RBA is likely to look through any boost to inflation as temporary and focus more on any drag to growth.'
Despite the rise in costs, Dr Oliver reminded motorists the price of crude oil had just gone back to levels it was this time last year.
He also believes subdued consumer confidence, weak business conditions and easing inflation would all add to a case for a rate cut.
'Following the weak March quarter GDP data our base case is for 0.25 per cent rate cuts in July, August, November and February taking the cash rate to 2.85 per cent.
The money market sees about an 88 per cent chance of a 0.25 per cent cut in July and just over three cuts by year end.
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