Pump prices to rise as political tensions mount

CHRIS ZAPPONE February 23, 2012

AUSTRALIAN households can expect to pay more at the petrol pump in coming weeks after crude oil prices rose to 10-month highs.

H3 Global Advisor director Mathew Kaleel said petrol prices were likely to surge over the next month, as political tensions in the Middle East combined with rising Asian demand and continued constraints on global refining capacity.

''If things continue as they are, with Europe not imploding, that's going to buoy prices for everyone,'' Mr Kaleel, a Sydney commodities investor, said. ''I think we're going to see sustained higher prices for oil generally.''

Adding to the pressure is Tuesday's breakthrough on the long-awaited Greek rescue deal, which should ensure European demand for oil at least remained steady, he said.

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Petrol prices may rise above $1.50 a litre in state capitals in the coming weeks, particularly if there was no resolution over Iran's disputed nuclear program, Mr Kaleel said.

The national average weekly retail price of petrol was 142.2¢ a litre in the week ending February 19, according to the Australian Institute of Petroleum website.

Brent crude, a global benchmark price for oil, rose 1.5 per cent, or $US1.82 ($1.70) on Tuesday, to $US123 a barrel, on renewed fears for oil supply security following Iran's threats to extend its export embargo to more European countries.

There is typically a two-week lag between Singapore Tapis crude oil prices and the retail petrol prices in Australia, with Tapis crude prices in turn influenced by Brent crude prices.

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Tapis eased nearly 1 per cent to $US128.90 a barrel on Tuesday but remains near 10-month highs.

ANZ commodities economist Natalie Robertson said oil prices had increased as expectations for an improving US economy rise, while China and Japan had loosened policies to spur growth, stoking demand for energy.

''A reduction in Iran's oil exports to various Asian and European countries has also provided an added level of tightness in the crude oil market,'' she said

Locally, speculation has increased in recent weeks that Caltex may close two of its refineries in Australia, reducing onshore production capacity. There are seven refineries in the country, with at least one earmarked for closure.

BP's chief economist, Christof Ruhl, told the Australian Financial Review on Tuesday that most of the closures of refineries were occurring in the developed economies, while Middle Eastern and Asian countries continue to build new capacity.

Mr Ruhl described the future of the local refining industry as ''dire'', according to the newspaper report.