Economic optimism supports petrol prices
Petrol prices: According to the Australian Institute of Petroleum, the weekly national average price of unleaded petrol rose by 6.4 cents to 154.4 cents a litre. After the rise of 5.9 cents in the prior week, petrol has recorded the biggest back-to-back gain in 10 months.
The petrol figures have implications for retailers, especially petrol marketing groups.
What does it all mean?
• Sydney and Melbourne petrol prices hit 15-month highs in the past week. Brisbane unleaded petrol hit 5-week highs – the highest price since record highs were set in the week to December 15. By contrast prices in all other capital city markets fell – highlighting the vagaries of ‘discounting’ cycles.
• Petrol prices are historically high because news on the global economy has been generally positive in recent weeks. The US and China signed a ‘Phase 1’ trade deal, Chinese economic data beat expectations and US housing starts lifted to 13-year highs. A stronger global economy may mean greater demand for oil. At the same time, OPEC oil nations together with Russia are restraining production. So while there has been some easing of oil prices from highs, there is unlikely to be significant declines in prices ahead.
• On Friday, global crude prices rose slightly. The Brent crude price rose by US23 cents or 0.2 per cent to US$64.85 a barrel. And the US Nymex price rose by US2 cents to US$58.54 a barrel. But over the week Brent fell by US13 cents or 0.2 per cent and Nymex fell by US50 cents or 0.8 per cent. These falls followed big declines in the prior week when Brent slid by 5.3 per cent and the same Nymex contract price fell 6.4 per cent.
• Wholesale (terminal gate) prices for unleaded petrol on mainland capital cities are broadly near 132 cents a litre, indicating that pump prices should be near 145 cents a litre. Unleaded petrol prices in Sydney, Melbourne and Brisbane should ease towards 145 cents/litre over the next fortnight. The discounting cycle in Adelaide finished on Friday and prices are headed toward cycle highs in the next few days. Pump unleaded petrol prices in Perth and Canberra appear ‘fair’ on the basis of wholesale prices. Darwin prices may be considered ‘low’ while Hobart prices appear ‘high’ on the basis of wholesale prices.
What do the figures show?
• According to the Australian Institute of Petroleum, the national average price of unleaded petrol rose by 6.4 cents to 154.4 cents a litre last week. The metropolitan price rose by 9.1 cents to 158.3 cents a litre and the regional price rose by 0.8 cents to 146.7 cents a litre.
• Average unleaded petrol prices across states and territories over the past week were: Sydney (up 13.6 cents to 161.6 c/l), Melbourne (up by 16.4 cents to 163.1 c/l), Brisbane (up by 16.1 cents to 166.0 c/l), Adelaide (down by 22.4 cents to 141.4 c/l), Perth (down by 1.0 cents to 144.3 c/l), Darwin (down by 0.7 cents to 141.4 c/l), Canberra (down by 0.3 cents to 147.2 c/l) and Hobart (down by 0.2 cents to 155.6 c/l).
• The smoothed gross retail margin (2-month rolling average) for unleaded petrol rose from 14.14 cents a litre to a 4-week high of 14.79 cents a litre (24-month average: 13.1 cents a litre).
• The national average diesel petrol price rose by 0.1 cents to 150.6 cents a litre over the past week. The metropolitan price rose by 0.1 cents to 149.2 cents a litre and the regional price was flat at 151.7 cents a litre.
• Today, the national average wholesale (terminal gate) unleaded petrol price stands at 131.7 cents a litre, down 2.5 cents over the week. The terminal gate diesel price stands at 137.0 cents a litre, down by 4.2 cents over the past week.
• MotorMouth records the following average retail prices for unleaded fuel in capital cities today: Sydney 157.0c; Melbourne 159.7c; Brisbane 158.3c; Adelaide 163.3c; Perth 136.3c; Canberra 147.1c; Darwin 140.8c; Hobart 155.6c.
• The key Singapore gasoline price fell by US$1.80 or 2.5 per cent last week to US$71.55 a barrel. In Australian dollar terms, the Singapore gasoline price fell by $2.95 or 2.8 per cent to $103.77 a barrel or 65.26 cents a litre – a 2-month low.
What is the importance of the economic data?
• Weekly figures on petrol prices are compiled by ORIMA Research on behalf of the Australian Institute of Petroleum (AIP). National average retail prices are calculated as the weighted average of each State/Territory’s metropolitan and non-metropolitan retail petrol prices, with the weights based on the number of registered petrol vehicles in each of these regions. AIP data for retail petrol prices is based on available market data supplied by MotorMouth.
What are the implications for interest rates and investors?
• Petrol prices remain historically high, restraining consumer enthusiasm to make discretionary purchases. Petrol is the single biggest item purchased by most households each week. So the extra $45 a month being outlaid at petrol pumps compared with a year ago certainly impacts household budgets.
• The average Australian petrol price is the highest in 15 months. Little relief lies ahead for motorists – only around 4 cents a litre.
• Over the December quarter petrol prices rose by around 4.5 per cent after falling by 2 per cent in the September quarter. Higher oil prices will lift the quarterly inflation rate by 0.14 percentage points in the quarter. The Consumer Price Index is released on January 29. The Reserve Bank Board meeting is on February 4.
Published by Craig James, Chief Economist, CommSec