A curious irony

One fact which no one appears to have picked up on in the current smoke and mirrors game which is the petrol debate is that the price could easily be even higher. Australian petrol prices are a function of two factors - world crude prices as indicated by the Singapore-based Tapis index and the exchange rate of the Australian dollar to its US counterpart. Due to our Indo-Chinese boom wake economy, our interest rates remain stratospheric compared to the US Reserve's offerings and consequently the Aussie dollar is worth a fair bit more. Those extra rate rises that so undermined the Howard government are effectively protecting people from paying (temporarily) in excess of $1.70 per litre.

What is odd about the current oil price surge is that it is counterintuitive. The Northern hemisphere is currently in summer, traditionally requiring the lowest demand on oil supplies. Further, the slow down across much of the world caused by the credit crunch and its aftermath is eating into economic growth and hence should result in less demand for oil. So that old adage applies, what goes up must come down.

One thing that is true though is that the higher a price peaks, the less likely it is to reset to its original level. Which means that an old oil price of around $60-80a barrel may well be history. So we should start adapting our fuel appetites by increasing fuel efficency standards and lowering oil reliance, rather than just talk of tinkering at the margins on issues such as Fuelwatch and beefing up the Trade Practices Act.