Aussie energy shares in focus as OPEC+ lifts oil supply
Oil market update

What happened? Global oil prices have fallen over 1.1 per cent in Asian trade so far today after OPEC and its allies (OPEC+) yesterday agreed to increase crude production by 400,000 barrels a day from August. Last week, the US Nymex oil price declined 3.7 per cent – the most since March – as soaring Covid-19 delta variant case numbers weighed on the outlook for global fuel demand.

Implications: After hitting 6-year highs just a few weeks ago, US oil prices are set to weaken alongside their Brent crude global benchmark counterparts following the OPEC+ accord. Weaker oil prices could weigh on Aussie-listed energy shares in the near-term, with a lift in Iranian crude exports expected in the coming days. ASX-listed heavyweight Santos is scheduled to release quarterly production results this week.

Movements in the energy prices can affect consumer spending, and in turn, prospects for retailers.

What does it all mean?

• Investors in Aussie energy stocks should be on guard. Global oil prices are down more than 1.1 per cent in Asian trade after OPEC and its allies (OPEC+) yesterday announced a deal to boost crude production. Producers have agreed to lift output by 400,000 barrels a day from August, increasing the overall baseline output to 3.65 million barrels a day. Analysts expect supply to be increased until all the remaining 5.8 million barrels a day of output cuts (cuts made in response to the pandemic shock) have been restored.

• The accord comes after the United Arab Emirates and Saudi Arabia ended a dispute over production quotas with both countries, Iraq, Kuwait and Russia all given increased baselines against which their output cuts are measured from May 2022.

• US Nymex crude oil prices hit 6-year highs just a few weeks ago, but fell 3.7 per cent last week, the biggest decline since March. And Brent oil prices lost 2.6 per cent for the week, marking a decline for the third week in a row for the first time since April 2020. Global crude oil prices came under pressure last week as rising global Covid-19 delta variant cases weighed on the outlook for global fuel demand. And a stronger US dollar dulled investor appetite.

• So what does this mean for Aussie energy investors? At the time of writing, the S&P/ASX200 energy index is down 2.2 per cent in trade today, dragging the index down 1.0 per cent year-to-date.

• Certainly, it is going to be a volatile week for oil-exposed ASX-listed companies as investors, analysts and traders digest the OPEC+ announcement. Also, Iran is expected to re-commence crude exports shortly after a lifting of sanctions, potentially complicating the supply outlook.

• Of course, concerns about the resurgence in global coronavirus cases persist with restrictions being re-introduced in Asia. That said, analysts still expect a tightening in the oil market over the coming months as vaccination rates lift, increasing driver mobility.

• Investors should also note that the US Nymex August futures contract expires tomorrow with Bloomberg reporting that the quantity of contracts held at the end of the trading day had declined more than 60 per cent since the beginning of last week. And in Aussie company news, Santos provides its latest quarterly production report this week.

• Last week the national average price of unleaded petrol fell by 3.8 cents a litre – the biggest drop in 6½ months – to 150.0 cents per litre (c/l), according to the Australian Institute of Petroleum.

• In good news for Brisbane motorists the city has entered the cheap phase of the retail unleaded petrol price cycle. Pump prices are averaging just over $1.45 a litre today according to real-time fuel app MotorMouth, down over 27 cents a litre since hitting record highs of $1.73 a litre on July 5. Drivers should fill up at prices less than $1.44 a litre.

• Retail unleaded petrol prices are averaging near $1.53 a litre today in Sydney, according to MotorMouth, but huge pricing variances exist in the current discounting cycle. Some servos are still charging motorists $1.76 a litre, but pump prices have fallen to near $1.34 a litre around Bankstown, which is currently in lockdown.

• With overall Sydney unleaded pump prices down just 11 cents a litre after hitting highs of $1.645 a litre on July 1, it is clear some retailers are dragging their heels cutting prices. Sydney’s wholesale of Terminal Gate Price (TGP) is hovering around $1.38 a litre today, well below the retail price.

• And in Melbourne the average retail unleaded petrol price is $1.444 a litre today, according to MotorMouth. Pump prices have been cut by 23 cents a litre after reaching highs of $1.677 cents a litre on July 1. Motorists are advised to fill up their tanks at servos offering fuel below $1.38 a litre, in-line with Melbourne’s TGP today.

What do you need to know?

Weekly Oil Market

• Last week, Brent crude fell by 2.6 per cent to US$73.59 a barrel, marking a decline for the third week in a row for the first time since April 2020. And the US Nymex price lost 3.7 per cent to US$71.81 a barrel, the biggest decline since March.

• The key Singapore gasoline price fell by US$1.59 or 1.9 per cent to US$84.36 a barrel last week. And in Australian dollar terms, the Singapore gasoline price dropped $2.32 or 2.0 per cent to $113.40 a barrel or 71.32 cents a litre, down from a 21½-month high in the prior week.

• Last week the national average price of unleaded petrol fell by 3.8 cents a litre – the biggest drop in 6½ months – to 150.0 cents per litre (c/l), according to the Australian Institute of Petroleum. The national average wholesale (TGP) petrol price was up by 1.4 cents last week to 138.2 cents per litre and stands at 138.1 cents a litre today.

• MotorMouth records the following average retail prices for unleaded fuel in capital cities today: Sydney 153.2c/l; Melbourne 144.4c/l; Brisbane 145.5c/l; Adelaide 141.8c/l; Perth 139.6c/l; Hobart 151.2c/l; Darwin 150.0c/l and Canberra 150.8c/l.

Published by Ryan Felsman, Senior Economist, CommSec