Petrol at 6-year lows: have prices bottomed?

Weekly petrol prices

• Petrol prices ease: According to the Australian Institute of Petroleum, the national average Australian price of petrol fell by 4.7 cents per litre last week to 111.0 cents a litre – the lowest in 6 years (since January 25 2009). Prices have fallen for nine straight weeks – a total of 31.8 cents per litre – the biggest decline for a similar period in six years.
• Has the petrol price hit bottom? Both the wholesale (terminal gate) prices and Singapore gasoline price rose in the past week.

What does it all mean?

• The OPEC secretary general has speculated that the crude oil price is finding a base at US45-50 a barrel “and will see some rebound very soon.” Perhaps. But the view will need to be backed up by supply and inventory data.
• Certainly there has been a modest rise in both the terminal gate (wholesale) and Singapore gasoline price over the past week. As a result, prices may be finding a near-term base. The question is whether this is just a pause for breath before prices test new lows in coming weeks.
• The difference between the retail and wholesale petrol price is averaging 11 cents a litre, above the 9.7 cents long-term average so retail prices still may have a little further to fall. The differential between retail and wholesale diesel prices is holding near 22-23 cents a litre.
• One of the interesting trends in Australia is the price differential between E10 and unleaded fuel. According to MotorMouth, across capital cities E10 is around 2-3 cents per litre cheaper than unleaded. Still, in Sydney some service stations have E10 on signboards at 98c a litre with unleaded closer to 111 cents a litre. And there are variations across the country. MotorMouth figure show that in some centres such as Geelong and Launceston, E10 is trading well above unleaded petrol. In other places like Parkes and Lithgow in NSW, MotorMouth figures show that E10 is around 16 cents a litre below unleaded petrol.
• The average household is paying $133.20 a month to fill up their cars with petrol, almost $53 a month cheaper than a year ago. The savings are equivalent to a quarter percent rate cut on a $350,000 mortgage. Rate cuts have been delivered – just in a different form, and arguably with wider benefits, benefitting tenants and home-owners alike.

What do the figures show?

Petrol prices

• According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol fell by 4.7 cents per litre to 111.0 cents a litre in the week to January 25. The metropolitan petrol price fell by 4.7 cents to 106.3 cents per litre and the regional price fell by 4.7 cents to 120.5 cents per litre.
• The national average Australian price of diesel petrol fell by 4.1 cents to 129.2 c/l in the week to January 25. Last week the metropolitan price fell by 4.1 cents to 128.1 c/l, while the regional average price fell by 4.4 cents to 130.1 c/l.
• Average unleaded petrol prices across states and territories over the past week were: Sydney (down by 4.3 cents to 103.1 c/l), Melbourne (down by 4.0 cents to 105.0 c/l), Brisbane (down by 6.7 cents to 106.9 c/l), Adelaide (down by 4.6 cents to 102.4 c/l), Perth (down by 4.0 cents to 111.1 c/l), Darwin (down by 5.2 cents to 130.3 c/l), Canberra (down by 5.8 c/l to 120.5 c/l) and Hobart (down by 3.8 c/l to 124.8 c/l).
• Today, the national average wholesale (terminal gate) unleaded petrol price stands at 101.36 cents a litre, up 1.0 cents on the previous week from 6-year lows (January 15 2009).
• Last week the key Singapore gasoline price rose by US40c or 0.7 per cent to US$57.05 a barrel, up from the near 6-year low (lowest since March 2009) of US$52.20 set on January 13. And due to a weaker currency, in Australian dollar terms the Singapore gasoline price rose by $2.66 a barrel or 3.9 per cent last week to $71.43 a barrel or 44.92 cents a litre.
• Figures from MotorMouth show that all capital city petrol prices fell last week.
• 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.
• The sharp drop in petrol prices is very positive for retailers. Filling up the car with petrol is the single biggest purchase most families make each week. The question is whether consumers cut debt or spend more with the savings.
• The Reserve Bank will weigh up a lower Aussie dollar and lower petrol price with the need to cut interest rates again. It is clear that there is already substantial stimulus being applied to the economy.

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?

• The sharp drop in petrol prices is very positive for retailers. Filling up the car with petrol is the single biggest purchase most families make each week. The question is whether consumers cut debt or spend more with the savings.
• The Reserve Bank will weigh up a lower Aussie dollar and lower petrol price with the need to cut interest rates again. It is clear that there is already substantial stimulus being applied to the economy.