Oil slumps on delta concerns; NSW job ads plunge

Oil market update; Skilled job vacancies

What happened? Last week the Brent crude oil price fell by US$5.63 a barrel or 7.4 per cent to US$70.70 a barrel, its largest week of losses in four months. And the US Nymex price dropped US$5.67 or 7.7 per cent to US$68.28 a barrel – the biggest fall since October.

Implications: Australia’s second and third largest listed oil and gas companies – Oil Search and Santos – have recently announced a US$16 billion merger proposal. If agreed, the merged entity would create a top 20 global oil company. And the mega deal may not be the last in the energy patch with Woodside Petroleum rumoured to be eyeing BHP’s Aussie petroleum business.

Economic data: Preliminary skilled job vacancies fell by 3.0 per cent (-7,177 jobs ads) to 232,632 available positions in July. While it was the second monthly decline after reaching a 12-year high in May (241,764 ads), recruitment activity is still up 38.3 per cent (or around 64,400 ads) when compared to pre-Covid-19 levels. But the 10.3 per cent (or -8,081 ads) plunge in NSW job vacancies was the third biggest monthly decline since July 2009.

Movements in the energy prices can affect consumer spending, and in turn, prospects for retailers. Job vacancies are a key gauge of future employment.

What does it mean?

• Crude oil prices are up around 40 per cent this year, driven by a strengthening in demand as major economies re-open, and supply discipline from OPEC, Russia and US shale producers. On the weekend, the world’s largest energy company, Saudi Aramco, announced a net profit of US$25.5 billion, the highest level since late 2018. And free cash flow lifted to US$22.6 billion, above the company’s $18.8 billion dividend. The announcement follows a recent spate of earnings results from oil supermajors, including BP, Chevron and Shell, which increased dividends and share buybacks as higher crude prices boosted profits.

• So what can Aussie energy investors expect during the company reporting season? ASX-listed companies could capitalise on the rebound in global benchmark oil and gas prices with expansion plans. But balance sheet concerns remain ever-present with companies still reliant on raising more capital and selling assets to fund growth projects. Already Australia’s second and third largest oil and gas companies – Oil Search and Santos – have announced a US$16 billion merger proposal. If agreed, the merged entity would create a top 20 global oil company. And the mega deal may not be the last in the energy patch with Woodside Petroleum rumoured to be eyeing BHP’s Aussie petroleum business.

• While investors are focused on company results, they should also keep one eye on developments in the crude oil market. Last week crude posted its biggest weekly loss since October as the fast-spreading Covid-19 delta variant caused a resurgence of new cases in the US, China, Germany and Australia – increasing concerns about the near-term demand outlook. Renewed restrictions, reduced mobility and a lift in oil production by OPEC+ have overshadowed signs of strong demand elsewhere. According to the US Department of Transportation, vehicle miles travelled on US highways over the week to August 1 were back at pre-pandemic levels.

• Brisbane motorists hitting the road today (after lockdowns were eased in South-East Queensland) are being confronted with near record-high petrol prices. According to MotorMouth, the average retail unleaded petrol price is 173.4 cents a litre in Brisbane today, but some servos are charging 176.9 cents a litre. With pump prices expected to remain elevated until next week, motorists should ‘top-up’ their tanks and consult fuel apps to get the best deals.

• Sydney’s elongated fuel price cycle continues during the extended lockdown. After peaking on July 1 at 164.5 cents a litre, the average retail unleaded petrol prices has fallen by just 18.8 cents a litre to 145.7 cents a litre today. Retailers have protected their margins with the wholesale or Terminal Gate Price averaging 134.7 cents a litre since July 1.

• And in Melbourne the average retail unleaded petrol price is 155.6 cents a litre today after peaking at 168.2 cents a litre on July 30. Pump prices are expected to fall further as the discounting cycle takes hold later this week.

• Encouragingly, job vacancies aren’t falling at the same rate yet as observed in last year’s nationwide lockdown. ANZ’s measure of job ads eased 0.5 per cent in July. And today, the National Skills Commission reported that skilled job vacancies were down 3.0 per cent last month. In fact, there are still a massive 232,632 available positions across the country, despite persistent shutdowns. Fearful of the future, prospective employers cut recruitment activity by 26.1 per cent in March and 41.3 per cent in April last year, so the 3.0 per cent dip in July was relatively benign. And overall ads are 38.3 per cent (or around 64,400 ads) higher than pre-Covid levels with Australia’s closed international borders exacerbating skills shortages in some industries and occupations.

• That said, some businesses have scaled-back their hiring plans from the 12-year high in national vacancies seen in May. Job ads fell across all states and territories in July apart from Victoria (+3.9 per cent or +2,379 ads). The 10.3 per cent (or -8,081 ads) plunge in NSW vacancies was the third biggest monthly decline since July 2009.

 

What do you need to know?

Weekly oil market update

• Last week the Brent crude price fell by US$5.63 a barrel or 7.4 per cent to US$70.70 a barrel, its largest week of losses in four months. And the US Nymex price dropped US$5.67 or 7.7 per cent to US$68.28 a barrel – the biggest fall since October.

• The benchmark Singapore gasoline price slid US$3.19 or 3.7 per cent to US$83.31 a barrel last week. In Australian dollar terms, the Singapore gasoline price shed $4.47 or 3.8 per cent to $112.72 a barrel or 70.89 cents a litre.

• Last week the national average price of unleaded petrol was steady at 151.1 cents per litre (c/l), according to the Australian Institute of Petroleum.

• The national average wholesale (TGP) petrol price was up by 2.3 cents last week to 139.7 cents per litre and also stands at 139.7 cents a litre today – just below the highest level (August 5, 2021 at 140.1 cents a litre) since October 24, 2018.

• MotorMouth records the following average retail prices for unleaded fuel in capital cities today: Sydney 145.7c/l; Melbourne 155.6c/l; Brisbane 173.4c/l; Adelaide 159.0c/l; Perth 140.0c/l; Hobart 154.7c/l; Darwin 151.3c/l and Canberra 151.7c/l.

Preliminary skilled job vacancies – July

• The National Skills Commission reported preliminary skilled job vacancies fell by 3.0 per cent in July (7,177 jobs ads) to 232,632 advertisements. While it was the second monthly decline after reaching a 12-year high in May (241,764 ads), recruitment activity is still up 38.3 (or around 64,400 jobs) when compared to pre-Covid-19 levels.

• Skilled vacancies by state/territory in July: NSW (-10.3 per cent); Victoria (+3.9 per cent); Queensland (-1.8 per cent); South Australia (-4.5 per cent); Western Australia (-1.6 per cent); Tasmania (flat); Northern Territory (-5.2 per cent); and the ACT (-2.6 per cent).

Published by Ryan Felsman, Senior Economist, CommSec