By Barry FitzGerald
Casual followers of the oil price will know from the nightly TV news that oil prices have fallen sharply since April.
Yet their own hip pocket tells them that the slide in global prices has done precious little to bring down local petrol prices, which have stubbornly stayed at around the $1.40 a litre level.
The temptation is to blame the oil refining companies. But the reality is that when it comes to the pricing of crude, oils ain't oils.
It is a point taken up by analysts at RBS Equities. In a recent research note they posed the question: "Petrol prices: why aren't they going doing down?"
The research note explains that local petrol prices are linked to the Tapis oil price (currently $US118 a barrel), not the West Texas Intermediate (WTI) price ($US87.58 a barrel) which typically features on those nightly news bulletins.
Tapis is a Malaysian crude oil and is the "benchmark" oil in Asia and Australia, while WTI is the benchmark for the US.
"Normally these prices trade very close to each other, but a gap has opened up recently between WTI and other crude prices, with Tapis falling only around 10 per cent from its recent peak, while WTI is down a very sharp 25 per cent," RBS said.
"If petrol prices were benchmarked off the WTI oil price. . . they would have dropped to around $1.20/litre or around 16 per cent lower than the average (local) price of $1.42/litre.
Inflation link
RBS pointed out that the link to Tapis rather than WTI meant the consumer price inflation index - watched closely by the Reserve Bank when considering rate moves - won't get the bigger benefit of lower WTI prices which could have knocked 0.7 percentage points off the headline CPI number.
"The much milder fall in the Tapis price, however, means that petrol prices are on track to take less than 0.1 percentage points off inflation in the third quarter," RBS said.
The end result is there is "no relief in sight for tight household budgets, with petrol prices likely to remain high," RBS said.
And, it seems, less room for the central bank to lower interest rates.
bfitzgerald@theage.com.au