Petrol eases from 19-month highs; Best month for shares

Weekly petrol price; Sharemarket perspective

• Retail petrol: According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol fell by 1.2 cents to 134.0 cents a litre in the past week.
• Wholesale petrol: The terminal gate (wholesale) petrol price stands at 117.8 cents a litre. Assuming a gross retail margin of 10 cents a litre, the pump price is likely to hold near 130 cents a litre. Sydney, Adelaide and Perth motorists are currently able to fill up near or below “cost” price.
• December is the best month for shares: Over the last 70 years, the Australian sharemarket has risen in December 73 per cent of the time, lifting on average by 1.9 per cent.

What does it all mean?

• As we forecast last week, petrol prices have retreated modestly from 19-month highs. And with wholesale prices down again over the past week, motorists can expect a little more relief at the petrol bowser.
• From June to December last year, petrol averaged around $1.20 a litre. Following the decision by OPEC oil nations to trim production, the new ‘normal’ for petrol is around $1.30-$1.35 a litre. The change has added around $18 to the monthly spending for Australian households. So provided OPEC nations maintain the discipline on production cuts, the extra amount spent on petrol will certainly add up over time for families.
• The lift in petrol prices means that motorists will increasingly need to shop around for the best petrol deals while at the same time they will increasingly question spending on non-essential purchases like outings to cafés and restaurants. Filling up the car with petrol is the single biggest weekly purchase by many Australian families. And not only will higher petrol prices crimp consumer sentiment and spending levels, they will lift the prices of goods with a high transport component.
• Is there a good month to buy shares? Many investors would be sceptical, saying that the broader influences are always changing. Still, looking over the past 70 years, December does indeed stand out as consistently out-performing other months, up on average by 1.9 per cent a month. The other months that have consistently out-performed have been April and July. February has been a more ‘difficult’ month for investors.

What do the figures show?

Petrol price

• According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol fell by 1.2 cents to 134.0 cents a litre in the past week. The metropolitan petrol price fell by 1.6 cents to 132.7 cents per litre while the regional price fell by 0.5 cents to 136.5 cents per litre.
• Average unleaded petrol prices across states and territories over the past week were: Sydney (down by 8.3 cents to 124.6 c/l), Melbourne (down by 3.1 cents to 136.5 c/l), Brisbane (up by 13.8 cents to 141.2 c/l), Adelaide (down by 11.3 cents to 119.9 c/l), Perth (down by 1.4 cents to 133.2 c/l), Darwin (up by 0.1 cents to 144.2 c/l), Canberra (down by 1.5 cents to 141.1 c/l) and Hobart (down by 0.2 cents to 143.9 c/l).
• The national average Australian price of diesel petrol fell by 0.1 cents to 130.9 cents per litre in the week to January 29. The metropolitan price was unchanged at 131.2 c/l, while the regional average price was unchanged at 130.8 c/l.
• The national average wholesale (terminal gate) unleaded petrol price eased further from recent 17-month highs, and today stands at 117.8 cents a litre, down by 1.2 cents a litre over the week. The terminal gate diesel price stands at 114.2 cents a litre, down by 1.2 cents a litre over the previous week.
• Last week the key Singapore gasoline price rose by US$1.40 or 2.0 per cent to US$70.20 a barrel. In Australian dollar terms the Singapore gasoline price rose by $2.43 a barrel or 2.7 per cent to $93.25 a barrel or 58.65 cents a litre.
• MotorMouth records the following retail prices for capital cities today: Sydney 122.2c; Melbourne 134.3c; Brisbane 139.8c; Adelaide 115.5c; Perth 127.4c; Canberra 139.2c; Darwin 143.8c; Hobart 143.2c.

Best months for shares

• Does the Santa Claus rally or Santa Claus effect exist? The figures suggest the broad answer is ‘yes’. Over the past 70 years the Australian sharemarket (All Ordinaries and equivalents) has lifted in December 73 per cent of the time with an average monthly gain of 1.9 per cent. In fact in December 2016 the All Ordinaries index lifted by 3.9 per cent.
• Consistently the second best month of the year for shares has been January, followed by April and July.
• In terms of the worst month for shares, June and September have consistently under-performed other months over the years followed by November and February. Over the past 70 years, the Australian sharemarket has fallen in February 50 per cent of the time with an average decline of 0.1 per cent. Still, February hasn’t proved such a poor month for shareholder returns in recent years, actually lifting in seven of the past 10 years. At the same time, January has become a less positive month for shares over the same time. So February may be better described as potentially a more difficult month for sharemarket returns.
• Before today, the ASX 200 had been up 0.9 per cent in January 2017 with the All Ordinaries index up 0.8 per cent.

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 higher cost of petrol is serving to lift inflation expectations as well as reducing the purchasing power of families. Both influences need to be watched by consumer-focussed companies.
• Over the year, December and June tend to out-perform other months in terms of producing the best sharemarket gains. There is no definitive reason behind the gains although the fact that these months are the end of the year (calendar year or financial year) may explain in part the performance gap. While the lack of predictability suggests that investors shouldn’t ‘time’ purchases, identifying ‘best’ and ‘worst’ months for share gains is useful background information given that other investors are watching the same trends.