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Petrol prices still low, but upside risks

Weekly Petrol Prices; China manufacturing

National average petrol prices: There is no weekly average petrol pump price data today from the Australian Institute of Petroleum due to a public holiday in the ACT.

Wholesale petrol prices: Last week the national average wholesale unleaded petrol price (terminal gate or TGP) was up by 2.0 cents to 97.65 cents per litre. Today, the average unleaded TGP stands lower at 96.8 cents a litre, down by 0.6 cents over the week.

China manufacturing: The Caixin purchasing managers index for manufacturing rose from 49.4 to 50.7 in May. The data suggests a further lift in Chinese economic activity.

Movements in the petrol price can affect consumer spending, and in turn, prospects for retailers. The trade data is important for businesses exposed to currency movements.

What does it all mean?

• Why track petrol prices? Filling up the car with petrol is the single biggest purchase for most households (food covers not just one item but a bevy of different items). The fall in petrol prices would be offering support to household spending. In turn, lower petrol prices represents good news for retailers.

• At a broader level, movements in oil prices are important for energy companies, petrol marketers, distributors, retailers and fuel users. Included in this group is Woodside Petroleum, Woolworths, Coles, Caltex and Qantas.

• Global oil prices remain low but are recovering as economies come out of lockdown. The oil price is very sensitive to ‘COVID-19 curves’ across the globe.

• Global oil prices soared as much as 5.3 per cent on Friday on optimism that the US-China trade deal would remain intact. The US oil rig count also hit an 80-year low. The Brent crude price rose by US4 cents to US$35.33 a barrel but the more active August contract rose $1.81 or 5 per cent to US$37.84. The US Nymex price gained US$1.78 or 5.3 per cent to US$35.49 a barrel. Over the week August Brent rose 6.1 per cent and Nymex rose by 6.7 per cent. Over May Nymex posted a record 88.4 per cent increase.

• While the good news for motorists is that petrol prices are low. The bad news is that prices are lifting as drivers get back behind the wheel following the virus lockdown.

• And crude supply could be curtailed even further to support prices. Today Bloomberg reported “OPEC+ is set to discuss a short extension of its current output cuts, according to a delegate, as the cartel considers bringing forward its next meeting a few days to June 4.”

What do the figures show?

Petrol prices

• MotorMouth records the following average retail prices for unleaded fuel in capital cities today: Sydney 103.4c; Melbourne 103.9c; Brisbane 111.6c; Adelaide 106.8c; Perth 100.2c; Canberra 109.6c; Darwin 109.5c; Hobart 120.4c.

• Sydney prices have fallen for 20 days; Melbourne prices have fallen for 17 days; Brisbane prices fell 19 days to May 29 and are now rising; Adelaide prices peaked on May 25 and have fallen for seven days. Sydney and Melbourne petrol prices could start lifting in the coming week if the retail discounting cycle comes to an end.

• Last week the national average wholesale unleaded petrol price (terminal gate or TGP) was up by 2.0 cents to 97.65 cents per litre. Today, the average unleaded TGP stands at 96.8 cents a litre, down by 0.6 cents over the week.

• Last week the national average wholesale unleaded petrol price (terminal gate or TGP) was up by 2.8 cents to 100.2 cents per litre. Today the terminal gate diesel price stands at 100.2 cents a litre, up by 1.0 cents over the week.

• The key Singapore gasoline price rose by 3.5 per cent or US$1.25 a barrel to an 11-week high of US$37.10 a barrel last week. In Australian dollar terms, the Singapore gasoline price rose by 91 cents or 1.65 per cent to an 11-week high of $55.71 a barrel or 35.04 cents a litre.

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.

What are the implications for investors?

• Demand for fuel will lift as lockdown restrictions ease. And in terms of oil supply, key producers remain keen to restrict output. If both these factors continue to operate, Aussie motorists will need to work harder to find savings at petrol bowsers.

Published by Craig James, Chief Economist, CommSec