Petrol Prices Down World Wide

The falling price of oil may have the world’s oil producers all hot and bothered but it’s a fair bet you’re smiling a little more at the pump each week with petrol prices dropping below $1 in some parts of Australia early this year. It’s a similar story all around the world with falling prices for petrol and diesel, with at least one notable exception: in Venezuela the price of petrol has gone up dramatically! By 6000 per cent, no less, and it’s all to do with the falling price of world oil.

World’s biggest oil reserves

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Venezuela has the world’s largest oil reserves and until recently its socialist government subsidised the price of petrol to the tune of US$12.5 billion annually. Petrol was virtually free as a result. That was all fine when the petro-dollars were pouring into the country, but falling oil prices and economic mismanagement have turned Venezuela into an economic disaster area. With inflation variously estimated as anywhere between 60 and 120 per cent, falling GDP and a serious trade deficit, Venezuela is in a tight spot. Tough times call for tough measures, so Venezuela’s President Maduro has overseen a petrol price rise from 2c/litre to $1.33/litre. It may have been a necessary measure but it won’t do much for that inflation problem. Food prices were already up by 315 per cent in a year before that price hike. President Maduro is probably feeling a little anxious right now. The last petrol price hikes in 1989 caused widespread rioting and the death of 3000 people.

A world of difference

Elsewhere in the world petrol prices vary enormously. In Kuwait and Saudi Arabia, where they’res no shortage of supply, it ranges from about 31-34c/litre. Meanwhile in Hong Kong it’s $2.40/litre. Here in Australia we’re somewhere in the middle at around $1.10/litre at the time of writing. So we’re better off than the Venezuelans and much better off than our Kiwi cousins over the Tasman, who are shelling out an average of $1.65/litre to fill up.

Falling demand, falling price

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Crude oil prices have dropped by 70 per cent since June 2014, putting a smile on the faces of motorists, freight company owners and airline executives worldwide. So what’s causing it? Wasn’t the price meant to increase as we approached “peak oil”? Well in simple terms it’s because US production from shale oil has increased dramatically to the extent that the US is for the moment self-sufficient in oil. Oil previously destined for the US now has to compete on price in Asian markets. On top of that demand for oil from sagging European economies is weak, with more fuel-efficient cars also dampening demand. In the face of reduced demand oil producing nations such as Iraq, Russia and Canada keep producing more and more oil. While investment in oil exploration is down, and several big production projects have been cancelled, it’s still going to take awhile for production to fall significantly. Revenue is falling all round among oil producing nations and the pressure is now on OPEC to cut production if prices remain low for another year. That’s unlikely to happen in the next few months, though prices may stabilise towards the end of 2016, wiping that smile off our faces as we fill up at the pump.

A snapshot of Petrol prices around the world*

Country
Price/litre in A$
Kuwait
.30
United Arab Emirates
.54
Canada
.99
Australia
1.10
United States
.52
New Zealand
1.65
Hong Kong
2.40

*At 22 Feb 2016

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