Motorists enjoy festive cheer, but risks ahead
Petrol prices: According to the Australian Institute of Petroleum, the weekly national average price of unleaded petrol fell by 2.5 cents to 142.2 cents a litre. Petrol discounting cycles haven’t yet ended in Sydney, Melbourne and Brisbane despite pump prices falling for 24 days.
The petrol figures have implications for retailers, especially petrol marketing groups.
What does it all mean?
• The Adelaide petrol discounting cycle ended last Wednesday. After falling for 14 days and bottoming at 136.7 cents a litre, pump prices peaked at 171.3 cents on Sunday. But petrol discounting cycles haven’t yet ended in Sydney, Melbourne and Brisbane despite pump prices falling for 24 days. Motorists in those capital cities certainly should take advantage of attractive conditions to fill up their cars. In capital cities on the eastern seaboard, some motorists can fill up at less than the wholesale cost of fuel. On historical trends, the end to discounting cycles appears imminent. Filling up the car with petrol is the single biggest weekly purchase made by most households, so the festive cheer is very much appreciated by motorists.
• Given tensions in the Middle East, the risk is that global oil prices will remain high, in turn lifting domestic petrol prices. On Friday the Brent crude price rose by US$2.35 or 3.5 per cent to US$68.60 a barrel. And the US Nymex price rose by US$1.87 or 3.1 per cent to US$63.05 a barrel. Over the week Brent crude rose by 0.6 per cent and Nymex rose by 2.2 per cent.
• The wholesale (terminal gate) price for unleaded petrol is broadly holding 134-135 cents a litre, indicating that pump prices should be near 147-148 cents a litre.
What do the figures show?
• According to the Australian Institute of Petroleum, the national average price of unleaded petrol fell by 2.5 cents to 142.2 cents a litre last week. The metropolitan price fell by 3.3 cents to 140.2 cents a litre and the regional price fell by 0.9 cents to 146.1 cents a litre.
• Average unleaded petrol prices across states and territories over the past week were: Sydney (down 5.3 cents to 137.0 c/l), Melbourne (down by 5.3 cents to 138.2 c/l), Brisbane (down by 4.9 cents to 137.8 c/l), Adelaide (up by 5.4 cents to 150.1 c/l), Perth (unchanged at 144.7 c/l), Darwin (up by 0.1 cents to 142.1 c/l), Canberra (unchanged at 147.9 c/l) and Hobart (unchanged at 155.9 c/l).
• The smoothed gross retail margin (2-month rolling average) for unleaded petrol fell from 13.99 cents a litre to 13.26 cents a litre (24-month average: 13.1 cents a litre).
• The national average diesel petrol price rose by 0.7 cents to 150.2 cents a litre over the past week. The metropolitan price rose by 0.6 cents to 148.8 cents a litre and the regional price rose by 0.7 cents to 151.4 cents a litre.
• Today, the national average wholesale (terminal gate) unleaded petrol price stands at 134.2 cents a litre, down by 0.7 cents over the week. The terminal gate diesel price stands at 141.0 cents a litre, up by 0.6 cents over the past week.
• MotorMouth records the following average retail prices for unleaded fuel in capital cities today: Sydney 136.8c; Melbourne 138.1c; Brisbane 136.8c; Adelaide 170.7c; Perth 134.3c; Canberra 147.8c; Darwin 142.1c; Hobart 156.2c.
• The key Singapore gasoline price fell by US$1.15 or 1.5 per cent last week to US$76.20 a barrel. In Australian dollar terms, the Singapore gasoline price fell by $1.86 or 1.7 per cent to $109.39 a barrel or 68.80 cents a litre.
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?
• While higher crude oil prices are positive for companies in the energy sector, the high prices aren’t encouraging for retailers and other consumer-focussed businesses. Retailers are already facing challenges to get consumers to open their wallets and higher pump prices would add to the difficulties. Consumers have shown greater penchant for saving, debt reduction and giving to charities in recent months rather than spending at malls.
• Over the December quarter petrol prices rose by around 5 per cent after falling by 2 per cent in the September quarter. Higher oil prices will lift inflation in the quarter and may lessen the inclination of the Reserve Bank to cut interest rates further.
• Commonwealth Bank Group economists have pencilled in another interest rate cut by the Reserve Bank of Australia in February 2020.
Published by Craig James, Chief Economist, CommSec