[Peakoil] It's time for some unpalatable facts about petrol

[Keith Thomas]

More good sense from Glenn Dyer here per word that we are hearing per 
hour from our politicians!
This gem is from Crikey this afternoon.

  5  . Petrol facts: It's too cheap so expect more pain

Glenn Dyer writes:

It's time for some unpalatable facts about petrol.

Australia has the fourth cheapest petrol in the world among major 
economies of the OECD. Only the US, Mexico and Canada charge more. We 
are underpricing this scarce resource.

Yes, people are feeling the pain in Australia, but it is nothing like 
the pain of the first and second oil shocks in the 1970s: oil prices 
rose by five to seven times in the space of six to seven years. And 
there were shortages because of associated embargoes and real gouging 
by some suppliers and distributors.

When oil plunged to $US10 a barrel by 1986, no-one said this was a bad 
thing, but it was because it lulled us into a false sense of energy 
security that was compounded in the 1990s by a similar experience after 
the worldwide recession and slow recovery.

We are paying the price for years of under-investment and the push by 
energy companies to be efficient and slash spending on exploration and 
development, or to return profits to shareholders that could have been 
reinvested in existing or new energy technologies.

Despite that history, there is a more recent lesson which we have 
ignored.

In the mid to late months of 2006, oil prices spiked to then record 
levels and petrol rose sharply. Petrol was around $1.35 to $1.45 a 
litre at times. Retailers like Big W, Target, Harvey Norman and Kmart, 
and airlines like Qantas and other oil-using or associated companies 
took a hammering as consumer spending slumped because oil prices 
surged, helped by a much lower Australian dollar.

Malcolm Turnbull and Brendan Nelson were members of a Government that 
did nothing to lower the impact of the higher prices.

Around August 2006, when fighting between Israel and Hezbollah broke 
out in Southern Lebanon, oil prices reached $US77 a barrel in New York 
and the Aussie dollar was around 77 USc. That produced an Australian 
dollar oil price of around $100 a barrel.

But if you look now in 2008 and use the exchange rate in August 2006 of 
around 77 USc, the current oil price becomes $A170 a barrel.

That's a big difference: the current exchange rate for the Aussie 
dollar is around 96 USc and that gives an actual local oil price around 
$A137 a barrel, based on the most recent $US132 a barrel figure.

So in effect that 19 USc rise in the value of the Australian dollar 
since August 2006 has cut the 2008 price of oil by over $A40, even 
after the big rise we have seen in the past year. That is a big cost 
saving -- at 2006 exchange rates, petrol would now be costing $A2 a 
litre!

Seeing oil fell from around $US77 a barrel in August 2006 to around 
$US50 a barrel in January 2007, there's been a significant switch in 
sentiment here, and yet the financial pain would have been more 
damaging back in 2006.

In fact, while oil prices rose through 2007 from January, retailing 
boomed. It was only when the credit crunch hit and then the Reserve 
Bank lifted interest rates four times between August 2007 and March 
this year, that retailing slowed and people really started noticing the 
impact of the rising price of petrol.

The AMP's chief economist and strategist, Dr Shane Oliver, says cutting 
petrol excise is not a solution to rising oil and petrol prices as it 
would simply encourage more petrol usage.

We are underpricing this scarce resource.
--------------------------------------------
Keith Thomas
www.evfit.com
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