Pain at the pump: Saudi oil shock sends Australian fuel prices surging

Australian petrol and diesel prices have returned to their highest levels in nearly six months and risk climbing further after drone attacks damaged a second major Middle East oil route.

The spikes at local fuel pumps – pushing the average price of unleaded back above $2.30 a litre – come after drone attacks two weeks ago disabled Saudi Arabia’s East-West pipeline , closing off the oil-rich kingdom’s primary bypass around the Strait of Hormuz and deepening analysts’ fears that the global supply crunch could worsen. The 1200-kilometre pipeline has been the key workaround for Saudi oil exports since the US-Iran war began, transporting millions of barrels of crude across the Arabian Peninsula to Red Sea ports so they could still reach global markets.

Energy analysts said the pipeline’s temporary shutdown was jeopardising about 4 million barrels a day – 4 per cent of the world’s oil supply – that it was previously carrying.

While global benchmark oil prices are currently trading around $US100 a barrel, the ongoing pipeline closure is limiting Saudi Arabia’s remaining export options and threatening to push energy prices higher if supplies keep falling.

“We think oil prices have a long way to go and could potentially rise another 50 per cent from current levels ... if the current situation persists,” analysts at Barclays said on Tuesday.

Fuel prices in Australia rise and fall in line with crude oil markets, typically with a lag of seven to 10 days. As a general rule, fuel industry experts and economists say each $US10-a-barrel swing in the oil price translates to 10¢ a litre at local pumps. By this measure, a $US50 increase could add 50¢ to the cost of a litre of petrol or diesel.

To assess the threats that the outage poses to Australia, Federal Energy Minister Chris Bowen is preparing to fly to Saudi Arabia this week for face-to-face talks with his counterpart, Prince Abdulaziz bin Salman, seeking a timeline for repairs to the critical infrastructure. Major Australian fuel importers have voiced concerns that a sustained disruption to Saudi oil flows could have potentially disastrous consequences locally, further crippling crude deliveries to the giant Asian oil refineries that deliver the bulk of Australia’s liquid fuel shipments.

Vivek Dhar, head of mining and energy commodities research at the Commonwealth Bank, said the pipeline closure was particularly troubling because global stockpiles had also weakened in the past three weeks.