Key facts
- Market forecasts show the probability of an RBA interest rate hike has doubled.
- Brent crude prices surged 23% in two weeks, nearing $90 a barrel due to US-Iran conflict.
- Diesel prices rose 40 cents to $2.10/litre, and petrol by 25 cents to $1.75/litre in Australian cities.
- The probability of an RBA hike by November has doubled to 80%.
- Economic growth is projected to slow to 1.5% by year-end.
The likelihood of an interest rate hike by the Reserve Bank of Australia has doubled, driven by escalating Middle East tensions and a subsequent surge in global fuel prices. The conflict between the United States and Iran has pushed Brent crude prices up by 23% in two weeks, nearing $US90 a barrel, amid concerns over dwindling global oil reserves.
Australian motorists are facing climbing fuel costs, with diesel jumping 40 cents to about $2.10 a litre and unleaded petrol up 25 cents to $1.75 a litre in major cities. These increases are partly due to the removal of federal fuel excise relief and the ongoing global disruptions.
Analysts warn the global energy market is at a critical juncture, with potential for further price spikes if the conflict persists. Luke Yeaman, CBA's chief economist, noted that a prolonged closure of key shipping straits could lead to higher inflation and slower growth, increasing the case for at least one further rate hike. He cautioned against calls for multiple hikes, suggesting that extreme oil price scenarios might prompt government intervention to shield households.
Market traders have significantly increased bets on an RBA rate hike, with the probability of a rise on August 12 now at nearly 30%, up from 16% two weeks ago. The probability of a hike by November has doubled to 80%. Yeaman forecasts economic growth to slow to 1.5% by the end of the year, down from 2.5% in 2025, with sharper slowdowns possible if the conflict escalates significantly.
Daniel Hynes, a senior commodity strategist at ANZ, stated that current oil prices do not fully reflect the structural hit to global supply and the system's fragility. He indicated that US oil inventories are breaching technical limits, increasing competition for scarce cargoes and driving up prices. Hynes described the market as being at a critical juncture, with risks rising daily.