NAB warns rising petrol prices could drive inflation above 5 per cent
Fuel prices hit more than $2.25 in Sydney today. (ABC News: John Gunn)
In short:
Global oil prices have spiked dramatically amid war in the Middle East, with Brent crude rising more than 25 per cent this afternoon.
Petrol prices have surged, with some motorists reporting prices as high as $2.42 a litre in WA.
What's next?
Economists at NAB warn inflation could peak above 5 per cent as fuel prices rise due to the skyrocketing cost of oil.
Oil prices climbed 25 per cent today, with Brent crude surpassing $US115 a barrel, as analysts label it a "furious rise" amid war in the Middle East.
Australians have already felt pain at the petrol pump, with fuel prices as high as $2.42 in parts of the country and wholesalers restricting supply.
Brent crude surpassed $US115 a barrel this afternoon, spiking more than 25 per cent during the day's trade.
"Oil's furious rise continues as the conflict in the Middle East shows no signs of abating,"RBC Capital Markets analyst Helima Croft said.
"Faced with the worst oil supply shock since the 1970s, all eyes will be on Washington's response mechanisms as oil breaches the [$US100/barrel] mark."
Reacting to the market moves, US President Donald Trump took to social media and called the "short-term" oil price spike a "very small price to pay" for "safety and peace".
The price is driven by the effective closure of the Strait of Hormuz, one of the world's key oil transit points which typically carries about one-fifth of global oil and liquefied natural gas.
Supply infrastructure has been damaged elsewhere in the Middle East.
"Unable to ship product and with storage tanks filling fast, several Middle Eastern countries are winding down oil production," Betashares chief economist David Bassanese wrote.
Iraqi oil production from its main southern oilfields has fallen by 70 per cent, with the country unable to export oil via the Strait of Hormuz, according to Reuters.
"Drone and missile attacks on oil refineries only add to the risk," Mr Bassanese wrote.
"The longer this war drags on, the larger the upside risk to oil prices — and presumably the pressure on Trump to try and strike a deal."
Smoke rises after a reported strike on fuel tanks at an oil refinery in Tehran, Iran. (Reuters: Majid Asgaripour/West Asia News Agency)
Restrictions on supply hit petrol prices at home
Fuel prices have spiked around Australia, leaving some motorists facing high costs to fill up for the week.
In Broome, WA, which is notorious for its fuel prices, standard unleaded hit $2.42 per litre on Monday on the edge of town and about $2.26 in the CBD.
WA's Fuel Watch shows petrol prices went as high as $2.42 in Broome. (Supplied: www.fuelwatch.wa.gov.au)
There has also been wide variation in prices.
In NSW, the government's FuelCheck reported the average price in NSW and the ACT was $2.07 for E10, but prices were as high $2.26 and as low as 193.5 cents.
In Darwin, pump prices also varied between 199.5 cents and $2.21 a litre, and there was a similar pattern in Brisbane. In Perth, the average was $1.92, and in Tasmania it was $1.99.
The Australian Competition and Consumer Commission (ACCC) issued a warning on Friday that it was keeping an eye on the Australian fuel market.
"We remind retailers that making false or misleading statements to consumers about the reasons of price increases would be in breach of the Australian Consumer Law,"ACCC commissioner Anna Brakey said.
Across the country, fuel wholesaler United Petroleum has started rationing supplies to service stations.
Other major fuel wholesalers, including Ampol, BP, Mobil and Viva, have restricted sales to contracted customers.
United Petroleum is among the wholesalers restricting supply because of the Middle East conflict. (Supplied)
Motorists pull out jerry cans
Motorists were seen filling up jerry cans over the weekend and today, including one near Sydney's CBD this afternoon, as they braced for higher fuel prices.
A motorist fills a jerry can with fuel in Sydney on Monday as petrol prices surge nationally. (ABC News: John Gunn)
One attendant reported that he had seen motorists do so as "the price has gone crazy".
Queensland fuel distributor Bartranz Petroleum posted on its social media it was only allocated 10 per cent of what it would usually transport.
It noted that fuel from Singapore, where it sourced its supply, had not been disrupted and believed the crisis was demand-driven.
"This is affecting ALL distributors. Some smaller distributors have NO allocation," they wrote.
"We can no longer supply service stations (every time we top them up the fuel is depleted within hours by people hoarding fuel in jerry cans and IBCs).
"The majority of service stations are NOT PRICE GOUGING. The market HAS risen at record breaking speeds over a matter of days."
A man fills jerry cans with petrol at a discount service station on the Central Coast on Sunday. (ABC News: Alison Branley)
Inflation could peak above 5 per cent: NAB
More pain could be coming for motorists if economists' predictions about the potential impact on inflation prove correct.
"Absent a quick reversal, lower fuel prices look set to jump enough in March to tip the trimmed mean to a 0.9 per cent [quarter-on-quarter] in Q1," NAB senior economist Taylor Nugent said.
"Inflation will peak above 5 per cent in Q2 unless fuel benchmark prices retrace from current levels over coming weeks."
Mr Nugent noted that markets have now priced in an additional 0.65 percentage points of tightening from the Reserve Bank, an increase of 0.3 percentage points over the past week.
"The implications for the path for the cash rate don't scale linearly with the energy prices," he said.
"Uncertainty is obviously incredibly high, but the more material the shock, the more material the domestic and global growth implications."
Markets are pricing in about a 36 per cent chance of an interest rate hike when the Reserve Bank meets in a fortnight's time, according to LSEG data, with no change to rates in March considered the much more likely option.
However, RBA governor Michele Bullock was clear last week that all meetings were "live", meaning all possibilities were open.