Falling oil prices weigh on Aussie energy shares
Weekly oil market

What happened? Last week global oil prices fell around 3 per cent as investors focused on Iranian nuclear talks, which raised the spectre of additional crude supply hitting global oil markets. Over the week, the Brent crude price fell by 3.3 per cent – the most since March – to US$66.44 a barrel. And the US Nymex price lost 2.7 per cent – the most in 6 weeks – to US$63.58 a barrel.

Implications: Falling crude oil prices weighed on Aussie-listed energy shares last week. The S&P/ASX 200 Energy index shed 2.2 per cent. Energy investors continue to navigate policy complexities, environmental concerns and volatility in the energy demand outlook due to the pandemic.

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

What does it all mean?

• Global oil prices are trading higher today on demand recovery hopes after the release of positive economic data in the US and Europe on Friday. The IHS Markit surveys of US manufacturing and services sector output hit record highs in May. And Eurozone business growth accelerated at its fastest pace in over three years in May, while a gauge of UK economic growth hits its highest level on record in the month.

• Falling US Covid-19 infection rates, declining virus death rates in both France and Italy, and rising vaccination rates last week are all signalling a likely boost in fuel consumption as mobility increases during the Northern Hemisphere summer months. And US oil prices were also supported on Friday on concerns about the potential for US crude supply disruptions with a severe weather system forming off the western Gulf of Mexico.

• But crude volatility is expected to persist this week with Iranian nuclear talks scheduled to continue. Global oil prices slid by around 3 per cent last week on rising supply concerns. A potential nuclear deal could see the US lift sanctions on Iran with analysts estimating that Iranian crude production could lift to almost 4 million barrels a day within three months.

• Falling crude oil prices weighed on Aussie-listed energy shares last week. The S&P/ASX 200 Energy index shed 2.2 per cent. Shares of Santos (down 5.7 per cent), Oil Search (down 5 per cent) and Woodside Petroleum (down 4.3 per cent) fell by the most. But Ampol shares lifted 9.2 per cent after the refiner announced a decarbonisation strategy and a partnership with electric vehicle and battery maker Tesla. Energy investors continue to navigate policy complexities, environmental concerns and volatility in the energy demand outlook due to the pandemic.

• Of course, international crude oil prices have a significant impact on petrol prices in Australia. Last week, regional gasoline prices in Asia eased. Australia is net importer of refined product from countries like Singapore. But the retail fuel cycle has arguably an even bigger influence on East Coast pump prices.

• In Sydney today the average retail unleaded petrol price stands at a 15-month high of 158.6 cents a litre, according to real-time fuel app MotorMouth. Average unleaded retail petrol prices are hovering around 145.5 cents a litre today in Melbourne. Brisbane remains in the cheap phase of the retail fuel cycle. Unleaded pump prices are averaging 134.1 cents a litre today. Brisbane drivers should fill up in the next day or two as servos could start to hike fuel prices later this week with the discounting cycle almost three weeks old.

What do you need to know?

• Last week the national average price of unleaded petrol rose by 0.5 cents a litre to 143.5 cents per litre (c/l) according to the Australian Institute of Petroleum. Metropolitan prices lifted 0.7 cents to 144.7 c/l and regional prices were up by 0.1 cent to 141.0 c/l.

• MotorMouth records the following average retail prices for unleaded fuel in capital cities today: Sydney 158.6c/l; Melbourne 145.5c/l; Brisbane 134.1c/l; Adelaide 129.6/l; Perth 128.8c/l; Hobart 144.8c/l; Darwin 140.0c/l; and Canberra 140.1c/l.

• Last week the key Singapore gasoline price fell by US71 cents or 1 per cent to US$72.79 a barrel. In Australian dollar terms, the Singapore gasoline price declined by $1.16 or 1.2 per cent to $93.85 a barrel or 59.03 cents a litre.

• Over the week, the Brent crude price fell by 3.3 per cent – the most since March – to US$66.44 a barrel. And the US Nymex price lost 2.7 per cent – the most in 6 weeks – to US$63.58 a barrel.

Published by Ryan Felsman, Senior Economist, CommSec