Weak Dollar and Australian Petrol Prices

The world’s financial markets have shifted their focus from oil supply problems to the demand side of the equation. They appear to have decided that the US and European economies look so dire that oil consumption will collapse. As a result, oil prices have been in free-fall, barely staying above US$100 per barrel. If the recent hostilities in Georgia had taken place a couple of months earlier, oil prices would almost certainly have shot up. But with the shift in focus, they scarcely reacted to the conflict.

Unfortunately for Australian motorists, a weak Australian dollar is preventing the full effect of lower oil prices coming though to the price of petrol at the pump. Oil is not the only commodity to see price declines, not good news for the currency of a commodity producing country. More significantly, the Reserve Bank has started cutting interest rates and the dollar is moving down alongside rates. Since the end of July, the dollar has fallen almost as much as oil. The result, evident in the graphs below, is that oil prices have not fallen nearly as much in Australian dollar terms as they have in US dollar terms.

Brent Crude Oil Prices for 2008

While the Australian Automobile Association has not yet released prices for August, casual observation while driving around Sydney would suggest that petrol prices fell again over the month. However, my model suggests that they reached their lowest levels in the middle of the month and have been nudging up again since, thanks to the unhealthy dollar.

Sydney Petrol Price Model

As usual, this data is also available on Swivel.

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5 thoughts on “Weak Dollar and Australian Petrol Prices

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  3. Adelaide

    I dont think that the weakening dollar has anything to do with the non shift in the price of fuel at the bowser. I do remember when the price of oil per barrel was around the $99 mark, the Australian dollar was around the 85c mark and the price at the bowser was indeed below $1.20 per L. The non price shift is pure profitiering. Plain and simple. I believe that oil companies will hire economists to place that element of doubt into the Austraiian consumers minds and make us beleive that the prive is justifyable. But its not only the oil company’s fault. The government would have some part in it as they would be receiving a fair kitty from the excise thats on the price of petrol.

  4. stubbornmule Post author

    @Adelaide: I think that your memory must be playing tricks on you. The first time crude oil prices hit $99 was earlier this year. At that time, not only was the Aussie dollar well above 85c, but the price of petrol in Sydney was closer to $1.40/L than $1.20/L. I’ve posted some charts to illustrate the point.

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