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Petrol prices hit 17-week high

High bar for new Reserve Bank policy measures
Weekly Petrol Prices; Reserve Bank Assistant Governor speech

Petrol prices: According to the Australian Institute of Petroleum, the national average price of unleaded petrol rose by 4 cents to a 17-week of 125.7 cents a litre last week.

East Coast petrol prices: According to data from MotorMouth, average daily unleaded retail petrol prices in Sydney and Melbourne have begun easing with the commencement of the discounting cycle. Petrol prices are back below $1.10 a litre in some South-Western Sydney suburbs. But Brisbane motorists should fill up now with pump prices beginning to lift.

Reserve Bank Assistant Governor speech: In a speech to KangaNews today Reserve Bank Assistant
Governor (Financial Markets) Christopher Kent said, “From my perspective [Reserve Bank] operations
have worked well. Along with other monetary, fiscal, prudential and health policies, they contributed to a noticeable improvement in market sentiment and accommodative financial conditions.” Movements in the petrol price can affect consumer spending, and in turn, prospects for retailers. Speeches from the Reserve Bank Governor can provide guidance on interest rate settings.

What does it all mean?

Aussie unleaded petrol prices averaged 125.7 cents a litre last week – a 17-week high. But Sydney and
Melbourne pump prices are beginning to ease after peaking at $1.37 and $1.41 a litre, respectively, a week ago. While the discounting cycle has begun, unleaded prices will remain elevated, likely averaging between $1.25 and $1.35 for the remainder of the week. It typically takes around three weeks for prices to reach the low point in the cycle – so motorists should ‘top up’ now – rather than ‘fill up’ their tanks.

That said, there are servos in pockets of South-Western Sydney (in Villawood, Chester Hill, Landsdowne and Mount Pritchard) already offering fuel below $1.10 a litre. And while Melbourne is in the midst of a second virus lockdown, pump prices are currently below $1.25 a litre in Footscray, Avondale Heights and Brunswick.

Brisbane bowser prices bottomed at $1.12 a litre on Friday, so drivers should fill up now. Unleaded fuel is already above $1.20 a litre in Cleveland, Acacia Ridge, Eagle Farm, Hamilton and Ascot. But bargains (below $1.04 a litre) can still be found in Brisbane’s western suburbs of Jindalee, Sumner Park, River Hills and Mount Ommaney.

The Reserve Bank is content with its efforts to calm Aussie bond and credit markets in the face of volatility caused by the first virus outbreak. Confronted with market dysfunction in March, policymakers acted decisively but cutting interest rates to a record low 0.25 per cent. They also executed a plan to anchor 3- year government bonds at 0.25 per cent through bond purchases (‘Yield Curve Control’). And liquidity injections via daily open market operations or reverse repurchase (repo) agreements eased funding and credit stresses.

These operations were supplemented by the Reserve Bank’s $90 billion Term Funding Facility, which reduced borrowing and funding costs – while supporting bank lending – particularly to under-pressure Aussie businesses and households at the height of the virus lockdown in April.

Dr. Kent also signalled that the Reserve Bank is ready return to bond markets to buy additional bonds – if needed – but the hurdle for new policy measures is high, “I think it’s broadly true that in the current circumstances we face, they’re not under consideration. But that could change if things get decidedly worse.”

What do the reports and figures show?
Petrol prices

According to the Australian Institute of Petroleum, the national average price of unleaded petrol rose by 4 cents to 125.7 cents a litre last week. The metropolitan price rose by 5.5 cents to 128.7 cents a litre and the regional price was up by 0.8 cents to 119.5 cents a litre.

Average unleaded petrol prices across states and territories over the past week were: Sydney (up by 10
cents to 134.2 c/l), Melbourne (up by 14.1 cents to 139.2 c/l), Brisbane (down by 9 cents to 114.2 c/l), Adelaide (up by 9.3 cents to 127.4 c/l), Perth (down by 0.5 cents to 120.1 c/l), Darwin (down by 0.2 cents to 118.9 c/l), Canberra (steady at 122.9 c/l) and Hobart (up by 0.2 cents to 124.1 c/l).

The smoothed gross retail margin (2-month rolling average) for unleaded petrol rose from 15.43 cents a litre to 16.84 cents (24-month average: 14.3 cents a litre).

The national average diesel petrol price rose by 0.1 cent to 120.3 cents a litre over the past week. The metropolitan price rose by 0.1 cent to 118.5 cents a litre and the regional price was unchanged at 121.7 cents a litre.

Last week the national average wholesale unleaded petrol price (terminal gate or TGP) was down by 1.2
cents to 103.4 cents per litre. Today, the average unleaded TGP stands at 103.1 cents a litre, down by 0.8 cents over the week. The terminal gate diesel price stands at 106.5 cents a litre, down by 0.2 cents over the week.

MotorMouth records the following average retail prices for unleaded fuel in capital cities today: Sydney 130.5c; Melbourne 135.5c; Brisbane 113.7c; Adelaide 107.6c; Perth 109.1c; Canberra 122.9c; Darwin 118.9c; Hobart 124.1c.

Last week the key Singapore gasoline price rose by US35 cents a barrel or 0.8 per cent to US$46.35 a barrel. In Australian dollar terms, the Singapore gasoline price fell by 47 cents or 0.7 per cent to $65.41 a barrel or 41.14 cents a litre. Reserve Bank Assistant Governor (Financial Markets) Christopher Kent spoke to KangaNews

What did Dr. Kent say and what does it all mean?

On monetary policy: “Monetary policy has been focused on supporting the economy by keeping the cost of borrowing low and helping to maintain the supply of credit to households and businesses.”

On the Reserve Bank’s open market operations: “First, it responded to the sharp rise in the demand for liquidity by the banking system by scaling up its daily open market operations. It met the demand for liquidity from banks, providing that at longer terms, against high-quality collateral. Second, the Bank provided much needed liquidity in a different manner, by purchasing government bonds outright at a time when there were plenty of sellers and very few buyers in those critical markets. And third, we provided the option of low-cost funding to banks by rolling out the Term Funding Facility.”

On acting to stabilise financial markets: “Along with other monetary, fiscal, prudential and health policies, they contributed to a noticeable improvement in market sentiment and accommodative financial conditions. Among other things, we clearly see the effect of that in the ability of firms to gain access to a wide range of funding, at low rates, including in fixed income markets.”

On the take up of the Reserve Bank’s Term Funding Facility (TFF): “The current take up of the RBA’s Term Funding Facility, set up in March to lower borrowing costs and support lending, is around A$26 billion, or around 17 per cent of the total currently on offer….our expectation and liaison with the banks suggest that the take-up of the TFF will ramp up as we get closer to the end of September when it comes to an end.”

On business access to credit: “Many large firms tapped their credit lines at banks in March and April, providing a significant boost to business credit.”

On the Aussie dollar: “It’s still an important transmission in monetary policy. But our assessment at the moment is it’s not that far from its fundamentals, which are of course commodity prices and the interest-rate differential, and it’s also about the relative performance of our economy versus economies offshore.”

On negative interest rates: “Our sense is it’s not going to be helpful in current circumstances.”

What is the importance of the economic data?

Weekly petrol prices data 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 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.

The Reserve Bank Assistant Governor’s speech enables investors to have more insights on the economy and
the operation of monetary policy.

What are the implications for investors?

Global crude oil prices continue to trade in a narrow range near US$40 a barrel. The Brent crude price is up by almost 130 per cent from its April low. A weakening US dollar has provided timely support for prices in July, pressured by the announcement of a relaxation in supply curbs by OPEC and Russian producers from August.

But rising supply and weakening demand could see oil prices begin to ease. A lift in US oil drilling – the first in four months – and rising US crude production threaten to derail the oil price recovery.

That said, rising political tensions between the US and China, a tentative easing in US virus cases and fatalities, and potential operational disruptions from Tropical Storm Hanna in the Gulf of Mexico are providing support to crude prices. Last week, the Brent rose by US20 cents or 0.5 per cent and the Nymex lifted by US70 cents or 1.7 per cent.

In the June quarter, petrol prices fell by 19 per cent – averaging around 113.6 cents a litre – and could shave 0.7 percentage points off headline consumer prices when the inflation data is issued on Wednesday.

China’s industrial profits rose by 11.5 per cent in June from a year ago – tracking the recovery in industrial production. Steel profits lifted sharply, supported by government-sponsored infrastructure spending. Iron ore prices are elevated, but have lost momentum in recent weeks as Chinese inventories build.

Published by Ryan Felsman, Senior Economist, CommSec