Oil prices have surged towards US$110 a barrel, creating another potential inflation problem for Australia just weeks after the Reserve Bank raised interest rates.
Brent crude finished Friday around US$109.86 a barrel after jumping 3.7%, while West Texas Intermediate rose 3.5% to US$101.41.
The increase followed renewed attacks around the Strait of Hormuz, strikes affecting Middle Eastern infrastructure and further threats to Russian refinery capacity.
The move takes Brent back towards its highest levels since May and places energy costs firmly back on the inflation radar.
Australian businesses face higher costs
Australia imports much of its refined fuel, meaning global oil movements can flow relatively quickly into domestic petrol and diesel prices.
Mining, agriculture, transport and logistics businesses are particularly exposed because fuel represents a major operating expense.
Higher diesel costs can then filter into supermarket prices, construction expenses and freight charges.
The renewed rise in oil is particularly awkward for the RBA.
Inflation has already accelerated back above the central bank’s 2%-3% target range, prompting September’s increase in the cash rate to 4.60%.
A sustained period of Brent near US$110 could make inflation harder to bring down and reduce the likelihood of near-term interest rate relief.
Energy shares may benefit from stronger commodity prices, but the broader economy faces the opposite effect.
For Australian households, higher fuel prices would arrive alongside elevated mortgage repayments and persistent cost-of-living pressure, creating another drag on discretionary spending heading into the end of the year.
You've reached the maximum length for this conversation, but you
