$1-a-litre petrol our new reality By Nigel Wilson 20sep00

THE price of petrol in most metropolitan areas is set to top $1 a litre next week and threatens to stay there for the rest of the year.

This follows a surge in the price of motor gasoline in Singapore, which is the benchmark for Australia's import parity pricing for petrol. The petrol price rise prediction comes as the Australian dollar yesterday hit an historic low against the greenback of US54.07 cents, while a 10-year high in international crude oil prices and weak US stock prices slashed another 1.2 per cent off the local share market.

The share market produced its biggest three-day loss since May when the key all ordinaries index closed 39.80 points down at 3188.20.

Australian Institute of Petroleum executive director Bryan Nye said the landed price of petrol had risen to 45.75 cents a litre yesterday.

The addition of 38.12 cents a litre in federal excise, 7.1 per cent in refinery and retail margins and 9.1 cents a litre in goods and services tax would take the pump price to $1.007 a litre, he said.

The equivalent for diesel was $1.068 a litre.

The higher landed prices reflected the higher profit margin being applied by Singapore refineries rather than the effect of renewed speculation on international crude oil prices, Mr Nye said.

Up until this week, Singapore refineries have charged low margins on petrol, meaning that the Australian benchmark price did not reflect the full impact of higher crude oil prices in recent weeks.

The oil industry argues that because of inventories in Australia, the landed price of gasoline  otherwise known as import parity  flows through to pump prices from seven to 10 days later. Prices for unleaded petrol in Australian capitals yesterday ranged from 92.9 cents a litre in Sydney to 103.8 cents in Darwin.

Oil company officials confirmed late yesterday that the landed cost of motor gasoline would flow through, though the precise impact on pump prices would depend on competitive pressures in state markets.

The higher prices will have an impact on inflation, initially through petrol prices measured in the Consumer Prices Index and, over the longer term, in higher input costs for industry from sharply higher diesel prices.

On Monday, crude oil prices on US markets surged almost 3 per cent, rising above $US37 a barrel for the first time in 10 years on the back of renewed fears that tensions between Iraq and Kuwait could lead to disruptions in crude oil from the Gulf states.

Mr Nye said there was no logic to the international price movements. They appeared to be responding to speculation that in the immediate short term demand for petroleum products, particularly heating oil in the northern hemisphere, would be greater than world refinery capacity.

But futures contracts for deliveries later in the year had not moved as high as the October contract, suggesting that prices would ease in November and December, he said.

The consistent high prices for crude  the New York quote has been greater than $US28 a barrel for more than 30 days  has led to pressure on the Organisation of Petroleum Exporting Countries to change the way crude is sold.

German Chancellor Gerhard Schroder has called for the Group of Seven at its Prague summit this weekend to back a call to OPEC to adjust output again, less than two weeks after it announced an 800,000-barrel lift in daily production to around 29 million barrels a day, the highest level for about two decades.

Chancellor Schroder is demanding that oil production be tied to the needs of the global economy, a view strongly supported by Britain and the US.

But OPEC puts the blame for higher prices at the pump on government tax.

http://www.theaustralian.com.au/common/story_page/0,4511,1219988%255E2702,00.html

-- Martin Thompson (mthom1927@aol.com), September 20, 2000