Global oil prices could be set to surge again, after new restrictions were placed on Russian oil exports by Western nations this month.
The restrictions are likely to result in reduced global supply of oil, which could result in a fresh spike in Australian petrol prices.
Here’s what you need to know.
How are oil prices set?
Oil is bought and sold all over the world, which means prices are set globally. That means a disruption somewhere can affect prices everywhere.
In general, oil becomes more expensive either when there is more demand for it or when there is less supply.
The global spike in oil prices this year has mainly been because of a supply shortage – specifically due to Russia.
Impacts from Russia
Russia is one of the world’s largest suppliers of oil.
Western sanctions on Russia have reduced global oil supply and affected global petrol prices, including in Australia.
Australian consumer petrol prices were at their highest level at the start of the invasion and the middle of the year, but have slightly decreased in the last few weeks.
What’s happened now?
Last week, Western countries including Australia, the U.S, Japan, the UK, and the countries of the European Union agreed to go even further in constraining Russian oil sales.
Under the new deal, Russian oil can now only be sold at or below a set ‘price cap’. To enforce this, Western-based oil companies usually involved in transactions will be prevented from taking part if the oil is sold above the price cap.
This would impact any trading partner using a Western company to complete the transaction.
Alexander Novak, one of Russia’s several Deputy Prime Ministers, said on Monday Russia would refuse to respect the price cap, saying they would trade on “market conditions” instead – that is, sell the oil at whatever price someone is willing to buy it.
Novak said Russia is prepared to simply export less oil rather than export at the price cap. This would exacerbate the supply problem.
What will it mean?
If global oil supply drops, the global oil price is likely to increase, which will in turn affect Australian petrol prices.
Petrol prices in Australian cities are currently around $1.75 per litre, but were over $2 per litre as recently as a month ago.