OD #18 - Why Petrol Prices Are Spiking Again

Why is petrol suddenly so expensive? In this episode of The Finance Bible, Oscar breaks down the rising fuel prices and explains how conflicts halfway across the world can hit your wallet at the pump. From Middle East tensions and shipping chokepoints to global oil markets and inflation, we uncover the hidden forces behind petrol price spikes. Whether you’re a commuter, a business owner, or just curious about the economy, this 15-minute episode makes sense of the numbers and helps you understand why the world’s oil markets matter to you

Transcript

Petrol Prices Jump Across Australia

Oscar Don 0:00

Have you noticed petrol prices creeping up again lately? If you filled up recently, you've definitely felt it. Across Australia, petrol prices have jumped roughly 50 cents per litre since the conflict in the Middle East escalated. And the national average price has climbed to around$1.98 per litre. And this isn't just happening in Australia. Global oil prices have surged above$100 per barrel, which is one of the highest levels we've seen since the pandemic. What's interesting is that nothing major has changed locally, but that's because petrol prices aren't just determined by what's happening in Australia. They're largely driven by global energy markets. Join me in this episode. We'll talk about why petrol prices are rising and what the war has to do with it.

SPEAKER_02 0:54

Zeke here and your co-host Oscar. But before we get into it, please note that nothing in this podcast should ever be considered as personal financial advice.

SPEAKER_01 1:03

Although, if financial advice is what you are seeking, let us know and we can get you in touch with the correct team.

SPEAKER_02 1:08

But for now, sit back, relax, and enjoy the show. Let's get into it.

Strait Of Hormuz And Supply Risk

Why Australia Pays Global Prices

Inflation Pressure And Rate Fears

Reserves Release And What Happens Next

Panic Buying, Prep Tips, Cheapest Fuel Apps

Follow, Share, And Sign Off

Oscar Don 1:17

Welcome back. Today you're joined with just myself, Oscar. Zeke and I will be doing a podcast next week that will be coming out, which will be really good. So stay tuned for that one. But today we're going to be talking about what's happening around the world right now. Obviously, you've got America, Israel, Iran. It's dominating all the headlines across every single news platform. Whenever you open up your phone, you're getting bombarded by different news, different information, different sides of the fence as well, depending where you're sitting. That will obviously help with your algorithm. But if you're being but everyone in the world knows what is going on. If you don't, you've been living under a rock. But today we're going to just talk about really why petrol prices are rising and what the war has to do with it. Because especially here in Sydney, expensive city, everyone is complaining because yes, the rents are already high, the cost of living here is ridiculous, as it is in Australia too. But now petrol prices have jumped and they're going to continue to jump. Some areas in regional Australia, like regional New South Wales, have jumped to around$3 per litre, which is ridiculous. It's because there's not enough petrol because of what's going on. So today we're going to talk about what is happening globally. So to understand why the petrol prices are rising, we need to look at the overall picture. So right now, as I mentioned, there is a major conflict escalating in the Middle East. So it particularly involves Iran and energy infrastructure in the Persian Gulf. So one of the most important places in the global energy system is the Strait of Hormuz. So this narrow shipping route carries roughly 20% of the world's oil supply every single day. So that's around 18 to 19 million barrels of oil. That's an enormous amount of energy moving through one small corridor. So when tensions escalate in that region, the markets are going to react immediately. So in fact, analysts estimate the conflict has put around 15 million barrels of daily oil supply at risk. So that's roughly 15% of the global supply. And as a result, the global oil prices have jumped more than 10 to 13% in a matter of days once that crisis has escalated. And that's because the oil market's extremely sensitive to supply distribution. So why does something happening thousands of kilometers away affect what we pay for petrol here in Australia? The reason is that oil is a global commodity. A barrel of oil extracted in the Middle East sells for roughly the same global price as a barrel produced anywhere else. And here's the key stat that most people don't realise is Australia as a country imports more than 90% of the fuel we use. So that means we rely heavily on international supply chains. Oil is also traded globally in US dollars, which means exchange rates affect prices too, depending on what the dollar's doing. But the US dollar to Australia, it's, you know, you know what's going on based on the past. It's not very similar. So definitely affects the dollar. And in the past month alone, crude oil prices have risen over 60%, largely due to supply concerns linked to the conflict. And when crude oil rises, the petrol prices usually follow. So what makes fuel prices so important is that they affect far more than just drivers. They affect fuel itself, powers a global logistics network. So everything from food to electronics to even building materials has to be transported. About 84% of the oil moving through the Strait of Hormuz is shipped to Asian markets. So that includes countries like South Korea, China, India, Japan. And Australia actually relies on those countries for a large share of our refined fuel imports. So if supply chains in that region become disrupted, then the ripple effects can be eventually reaching Australia. And in some global and in some regions globally, petrol prices have already surged to as high as$3.40 per liter during the volatility. So that just shows how quickly fuel prices can spike when global supply is threatened. And when fuel prices rise, it doesn't just affect transport costs, it can affect the entire economy. So higher fuel costs push up the cost of moving goods, producing products, and running businesses. And that can lead to inflation, which simply means prices rising across the economy. And some analysts estimate that the current oil shock could add around 0.8% to global inflation if it persists, which is massive in the scheme of things, especially in Australia and for interest rates for any property lovers, which majority of our podcast is. Today we're going a bit off topic, but the RBA and the interest rates in Australia is purely set on inflation. So if global inflation is going to increase, then obviously Australia is going to increase too. And then rates will probably increase. So it's really not too good. And there are already forecasts suggesting oil could potentially reach$150 per barrel if supply disruptions continue. With some extreme scenarios, even warning of prices approaching$200 per barrel if the shipping routes remain blocked. But the most important bit is if inflation rises significantly, central banks like the RBA, who are in charge of adjusting the interest rates, which impact every homeowner in Australia, they may respond by adjusting interest rates to stabilize the economy. And I hate to say that's looking extremely likely at the moment. So what happens next? Right now, global governments are trying to stabilize energy markets. In fact, the International Energy Agency has announced plans to release over 400 million barrels of emergency oil reserves into the market to help stabilize prices. Strategic reserves like these are generally designed specifically for situations where supply is disrupted by war or conflict. And the goal is to temporarily increase supply and calm markets. But ultimately, overall, the oil prices will depend heavily on how the geopolitical situation unfolds. If tensions ease and the shipping routes remain open, then we may see stabilization in prices. But if the conflict escalates further, the energy markets could remain extremely volatile. And in Australia, a lot of individuals are saying as a country, we only have another 25 to 30 days worth of fuel banked up before the prices really move. So I wouldn't be surprised if we start to see in the 3s for per liter, you know, we might be talking to$3 per litre for petrol, which is extremely alarming. There was a couple guys last week who on channel 9, I believe, the news, they were seeing over in New South Wales filling up massive barrels of petrol just to purely just to stock up in case anything happens. Like in COVID, when everyone was getting the toilet paper at the supermarkets. Very different thing, very, very different pricing as well. So that just shows that people were starting to panic around the petrol prices and kind of stock up while they can. The key takeaway in this short and sharp little podcast is that petrol prices aren't just influenced by local factors. They're purely shaped by global energy markets, geopolitical tensions, supply chains, and currency movements. It's a reminder that the world economy is deeply interconnected. So something happening thousands of kilometers away can still impact what you pay to fill up your car here in Australia, which doesn't seem out of the ordinary, but for a lot of people, it's it's a bit of a shock. So that's exactly what you're seeing here in Australia when you go to the petrol station with all the oh with all over the news, everything that's going on, the current war is affecting this. So the sooner this war is complete and over, the sooner things will get back to normal. But with what's going on, and obviously every country involved wanting their own say, for me, it doesn't look like it's going to be over for a while. And I do believe we'll probably hit the threes, um, unfortunately. And then inflation's going to rise and rates are going to have to come up. So it's going to be a bit of a tough few months, I believe. That's what I'm thinking. So if you're on the fence about buying a property, I'd probably speak to someone who can help you give you a better realm and a bit of advice around that because we're finding a lot of clients are wanting to get in now while they can before things start to increase. So there's a lot of different things going on right now and a lot of different decisions that you need to make. Obviously, you need to make sure that you've got enough money aside in your emergency fund if you need for extra fuel, etc. But this is basically what's going on right now, a bit of a warning of what can happen in the next one to two months and how you can kind of combat it, I guess, as well with knowing what's happening, knowing pre-planning ahead. And there's heaps of good apps as well: petrol Finder, Petrol Scout, Petrol Spy, three good apps around finding the cheapest fuel in your area. So if you don't have that already, probably a good time to actually get that because it literally finds your location, figures out where all the petrol stations around you in a close proximity. You might put a 5k radius, and then it'll show you the cheapest petrol or diesel, whatever you use around you, so you can go and fill up your car for the cheapest amount possible and try and minimize the impact for you as much as possible. But this is what I wanted to talk about today, just a short and sharp episode. But we'll be back next week with a joint episode with Zeke and myself, and we look forward to seeing and speaking to you all then. Ciao.

SPEAKER_01 11:20

Well, that is the end of the episode. We hope you enjoyed it. And if you did, you know exactly what to do. Hit that follow button, like button, subscribe, share it to your friends, families, or even a co worker. If you're really feeling generous, you can send it off to an ex. But catch you next time. Hope you enjoyed it. Darling.

SPEAKER_02 11:38

Ciao.