Oil slides on failed meeting; Tourism routes in demand

Weekly petrol prices; New vehicle sales; Air traffic data

• Retail petrol: According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol rose by 2.5 cents per litre to 116.9 cents per litre in the week to April 17.
• The Nymex crude oil price fell by over 5 per cent to US$38.22 a barrel in electronic trade this morning after a meeting by major oil producers failed to reach agreement on an output freeze.
• Air traffic: The Sydney-Melbourne route is a key indicator of business activity. Passenger numbers in the year to February hit a record 8.7 million. Smoothed annual growth was the best in 28 months.
• New vehicle sales: New vehicle sales rose by 2.2 per cent in seasonally adjusted terms in March to be up by 4.2 per cent on the year. Sales of SUVs (421,625) hit record highs in annual terms.

What does it all mean?

• Petrol prices may have risen last week but motorists have reason to celebrate this morning, after a meeting of major oil producers failed to reach an agreement on an oil production freeze. Global oil prices had been holding above US$40 a barrel in the lead up to the meeting. However the failure to reach an agreement has dealt a serious blow to OPEC credibility and as such the Nymex crude oil price fell by over 5 per cent to around US$38 a barrel. It is likely that traders and investors will continue to digest this news over the next couple of days. Ongoing concerns about excess oil supply is likely to keep further downward pressure over the medium term. CBA commodity analysts expect oil to potentially drift to US$30-35 a barrel in the near term.
• It will take another couple of weeks for lower crude prices to filter through to pump prices, so the vagaries of the ‘discounting cycle’ in operation across southern and eastern capital cities will continue to be the dominant factor in pump prices. In Sydney, prices have been falling for 10 days and in Melbourne prices have been falling for more than a fortnight, with petrol at around $1.13 a litre in both capital cities. Adelaide prices were below $1 litre before spiking by more than 25 cents in the past week. Prices in Brisbane are near the peaks in the cycle and Brisbane motorists would benefit by holding off from filling up the family vehicle.
• Importantly cheap fuel continues to keep inflation contained and the Reserve Bank will keep an implicit easing bias in play over the next six months.
• The number of people flying on the Sydney and Melbourne route has traditionally been seen as a barometer of business activity. The good news is that record numbers are flying the route with growth the fastest in over two years. Flights are up, passenger numbers are up and the proportion of seats being filled has also lifted in the four months. The results aren’t just encouraging for the airlines, but also is further confirmation of the latest reading of business conditions which currently stands at 8-year highs.
• Interestingly the rebalancing across the economy continues to gather momentum. The air traffic data has shown that tourism routes like Hamilton Island – Sydney have seen a 32 per cent lift in passenger numbers over the past year. Similarly Sunshine Coast – Sydney is also recording a 24 per cent lift. At the other end of the scale are mining routes like Karratha – Perth (down 20 per cent). No doubt the lower Aussie dollar is a key driver of inbound international tourists, but also domestic tourism looks decidedly strong – a result that has also shown up in the Commonwealth Bank Business Sales Indicator.
• The data on new vehicle sales merely confirms the industry estimates made by the Federal Chamber of Automotive Industries earlier in the month. The key message is that record car affordability, low interest rates and a stronger job market are serving to drive vehicle sales.
• Of note, sports utility vehicles (or four-wheel drive vehicles) remain the ‘new black’. While sales of ‘ordinary’ passenger cars fell by over 7 per cent in March compared with a year ago, SUVs lifted by almost 15 per cent over the year. In fact over 421,625 SUVs were sold over the past year – a record high. Over 45 per cent of combined SUV and passenger cars sold are SUVs.

What do the figures show?

Petrol prices

• According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol rose by 2.5 cents per litre to 116.9 cents per litre in the week to April 17. The metropolitan petrol price rose by 3.3 cents to 118.5 cents per litre while the regional price rose by 0.9 cents to 113.6 cents per litre.
• The national average Australian price of diesel petrol fell by 0.3 cents to 112.0 cents per litre in the week to April 17. Last week the metropolitan price fell by 0.4 cents to 110.9 c/l, while the regional average price was down 0.3 cents to 112.9 c/l.
• Average unleaded petrol prices across states and territories over the past week were: Sydney (up by 7.7 cents to 117.8 c/l), Melbourne (down by 7.2 cents to 117.7 c/l), Brisbane (up 9.8 cents to 126.9 c/l), Adelaide (down 17.2 cents to 117.7 c/l), Perth (down 1.2 cents to 110.3 c/l), Darwin (down by 0.3 cents to 115.3 c/l), Canberra (down 0.4 cents to 116.6 c/l) and Hobart (unchanged at 117.4 c/l).
• Today the national average wholesale (terminal gate) unleaded petrol price stands at 103.8 cents per litre, up 2.4 cents per litre on a week ago and still up 8 cents a litre on than the lows set in mid-February. The terminal gate diesel price stands today at 97.7 cents a litre, up 3.2 cents a litre over the week.
• Last week the key Singapore gasoline price rose by US$1.35 or 2.6 per cent to US$54.35 a barrel. In Australian dollar terms the Singapore gasoline price rose by 21 cents a barrel (0.2 per cent) to $70.48 a barrel or 44.3 cents a litre. This morning the Nymex crude price fell over 5 per cent to US$38.22 a barrel.
• MotorMouth records the following retail prices for capital cities today: Sydney 113.0c; Melbourne 113.9c; Brisbane 123.9c; Adelaide 126.8c; Perth 102.4c; Canberra 108.5c; Darwin 114.7c; Hobart 117.8c.

New car sales:

• According to the Australian Bureau of Statistics (ABS) new vehicle sales rose by 2.2 per cent in seasonally adjusted terms in March after a flat result in February. Passenger car sales rose by 2.8 per cent, while sales of sports utility vehicles fell by 0.3 per cent and sales of “other” vehicles (includes utilities, panel vans, cab chassis, goods carrying vans, rigid trucks, prime movers, non-freight carrying trucks, and buses) rose by 5.2 per cent.
• New vehicles sales were up by 4.2 per cent over the year. Passenger car sales in March were down 7.5 per cent over the year while SUVs sales were up by 14.7 per cent and “other vehicles” were up by 14.4 per cent.
• In rolling annual terms, a record 1,163,142 new vehicles were sold over the year to March. Sales of SUVs (421,625) hit record highs in annual terms, while annual sales of other vehicles stood at a 27-month high of 236,169. Sales of passenger vehicles stood at a near 19-year low of 505,348.

SUVs accounted for a record 45.5 per cent of combined passenger car and SUV sales in the year to March.

Sydney-Melbourne air traffic:

• The Sydney-Melbourne route is the third busiest air route in the world. The Sydney-Melbourne route is also a key measure of business activity. In the year to February 2016, there were a record 60,115 flights between Sydney and Melbourne. The annual growth rate of the number of Sydney-Melbourne flights eased from a 33-month high of 7.3 per cent in December to 6.0 per cent in February, but this was still above the decade average growth of 4.2 per cent.
• Late last year the increase in the number of flights between Sydney and Melbourne led to an easing in the moving annual load factor to 81.15 per cent in October – a 28-month low. But the average load factor has since lifted in the following four months to 81.62 per cent in February in line with the slower growth in the number of flights and a continued lift in passenger numbers.
• In February, the number of passengers on the Sydney-Melbourne route was up by 6.9 per cent on a year ago to 743,202 – a record for a February month but boosted by the extra day of trade. In the year to February a record 8.7 million passengers were carried between Sydney and Melbourne. Smoothed annual growth in passenger numbers lifted from 4.0 per cent to 4.1 per cent – the strongest growth in 29 months.

All domestic air routes

• Across all domestic air routes (not just Sydney-Melbourne) the rolling average load factor (proportion of seats occupied by passengers) remained steady at a 2-year high of 76.6 per cent.
• In the year to February, 57.9 million passengers were carried on domestic air routes, up 1.0 per cent over the year and the strongest growth in 20 months.

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.
• The Australian Bureau of Statistics provides seasonally adjusted and trend estimates of industry data. The Federal Chamber of Automotive Industries releases estimates of car sales on the third business day of the month. The figures highlight the strength of consumer spending as well as conditions facing auto & components companies.
• The Bureau of Infrastructure, Transport and Regional Economics (BITRE) releases regular aviation data. The BITRE releases the Australian Domestic Airline Activity publication each month as well as the Domestic Air Fares publication. The data provides insights on airline activity as well as trends in the broader Australian economy. If more people are flying, then it suggests businesses are more active and/or consumers are more confident.

What are the implications for interest rates and investors?

• Lower oil prices may add further pressure to energy stocks and increase volatility across sharemarkets. However cheap fuel is a positive for a number of sectors including transport and logistics.
• Filling up the car with petrol is the single biggest weekly purchase for most families. So the savings being reaped at the petrol bowser are serving to boost discretionary spending in areas such as cafes, restaurants and take-away outlets.
• CommSec expects no change to interest rate setting over the medium term.