Oil in focus after drone attack on Saudi Arabia. Slowest Chinese production in 17½ years

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Weekly petrol prices: Chinese economic data

  • Petrol: According to the Australian Institute of Petroleum, the national average price of unleaded petrol rose by 3.4 cents in the past week to 143.6 cents a litre (but was down 8.6 cents a litre on the year).
  • Chinese data (August): Retail sales rose at a 7.5 per cent annual rate with production up 4.4 per cent and fixed asset investment up 5.5 per cent (eight months to August).

Movements in the petrol price can affect consumer spending, and in turn, prospects for retailers. The Chinese data is important for exporters, especially rural producers, consumer goods, mining and energy companies.

What does it all mean?

  • Saudi Arabia’s Abqaiq oil processing plant was hit by a drone attack on Saturday morning. Iran-backed Houthi rebels in Yemen claimed responsibility for the attack. It is currently estimated that about half of the country’s oil output has been affected by the attack and subsequent fires. In response this morning, the Nymex and Brent futures prices have lifted by 9-10 per cent (after earlier being up as much as 18 per cent).
  • Analysts are awaiting information from Saudi Aramco on how long production is likely to be affected. More positively, other producers such as the US are indicating willingness to keep the world well supplied with oil. President Trump “authorized the release of oil from the Strategic Petroleum Reserve, if needed, in a to-be-determined amount sufficient to keep the markets well-supplied.” Before the drone attack, it is important to note that the major concern was that the global oil market was headed for surplus or over-supply in 2020.
  • Whether today’s spike in the oil price is sustained will depend on the advice of Saudi Aramco. But as noted, there are a range of options available to ensure any short-term production disruption can be made up from other global sources across OPEC and non-OPEC nations.
  • It takes 7-10 days for higher world oil prices to be reflected at the local petrol pump. It’s also important to note that the usual ready reckoner is that a US$1 a barrel lift in crude oil translates to a 1 cent per litre increase in the local petrol price.
  • The Chinese economy continues to slow, highlighting the value of the country securing a trade agreement with the US – even if it was only an interim agreement confined to areas of substantial consensus. Still, the Chinese statistical bureau (NBS) says the country will be able to achieve their full-year economic growth target of 6.0-6.5 per cent.
  • The slowdown of the Chinese economy keeps the door open for stimulus in the shape of infrastructure projects that may serve to keep demand elevated for Australia’s iron ore. In fact Reuters quotes the NBS as saying that “China will move forward local government special bond issuance to support infrastructure investment.” On Friday, the spot iron ore price held at a 6-week high of US$99.10 a tonne.

What do the figures show?

Petrol prices

  • According to the Australian Institute of Petroleum, the national average price of unleaded petrol rose by 3.4 cents in the past week to a near 3-month high of 143.6 cents a litre. The metropolitan price lifted by 4.2 cents to 144.5 cents a litre, and the regional price rose by 1.9 cents to 141.6 cents a litre.
  • Average unleaded petrol prices across states and territories over the past week were: Sydney (up by 17.8 cents to 151.3 c/l), Melbourne (down by 10.1 cents to 132.7 c/l), Brisbane (up by 18.2 cents to 157.4 c/l), Adelaide (down by 13.2 cents to 142.6 c/l), Perth (down by 0.3 cents to 138.5 c/l), Darwin (down by 0.5 cents to 138.3 c/l), Canberra (down by 0.1 cents to 141.4 c/l) and Hobart (up by 0.1 cent to 151.4 c/l).
  • The smoothed gross retail margin for unleaded petrol rose from 10.95 cents a litre last week to 11.51 cents a litre (24-month average: 13.0 cents a litre).
  • The national average diesel petrol price was steady at 146.8 cents a litre over the week. The metropolitan price fell by 0.1 cent to 145.2 cents a litre and the regional price fell by was steady at 148.0 cents a litre.
  • MotorMouth records the following average retail prices for capital cities today: Sydney 150.0c; Melbourne 132.4c; Brisbane 150.3c; Adelaide 131.8c; Perth 129.5c; Canberra 141.5c; Darwin 138.3c; Hobart 151.4c.
  • Today, the national average wholesale (terminal gate) unleaded petrol price stands at 131.0 cents a litre, up by 2.1 cents over the week. The terminal gate diesel price stands at 135.6 cents a litre, up by 1.2 cents over the past week.
  • Last week, the key Singapore gasoline price rose by US$2.40 or 3.4 per cent to US$72.30 a barrel. In Australian dollar terms, the Singapore gasoline price rose by $2.75 or 2.7 per cent to a 9-week high of $105.19 a barrel or 66.16 cents a litre.

China data: August 2019

  • Retail sales rose at a 7.5 per cent annual rate in the year to August, (consensus: +7.9 per cent), down from the 7.6 per cent annual rate in the year to July. Non-auto retail sales lifted by 9.3 per cent over the year.
  • In real terms, total retail sales rose by 5.6 per cent over the year.
  • Of the 11 spending categories, six recorded stronger annual spending growth than the July result. Notably auto sales fell 8.1 per cent on a year ago – the biggest annual fall in eight months. The biggest gain in sales was by office supplies (up 19.8 per cent).
  • Online retail sales rose at a 20.8 per cent annual rate in the first eight months of 2019.
  • Industrial production rose at a 4.4 per cent annual rate in August (consensus: +5.2 per cent) – the slowest growth in 17½ years. Production had risen by 4.8 per cent in the year to July.
  • By sector, utilities rose 5.9 per cent with mining up 3.7 per cent and manufacturing up 4.3 per cent.
  • Most industries slowed except production of ferrous metals (up from 10 per cent to 10.4 per cent) and machinery (up from 7.6 per cent to 10 per cent).
  • By product, seven of twelve sectors showed stronger annual growth. Coal production growth slowed from 12.2 per cent to 5 per cent but crude steel production rose from 5 per cent to 9.3 per cent.
  • Fixed-asset investment rose by 5.5 per cent in the eight months to August on a year earlier (consensus: +5.6 per cent), down from 5.7 per cent growth in the seven months to July.
  • Investment by state-owned enterprises rose by 7.1 per cent (7.1 per cent in July). Private sector investment grew by 4.9 per cent (7.3 per cent in July). Real estate investment slowed from 10.6 per cent to 10.5 per cent; foreign investment eased from 3.6 per cent to 2.5 per cent; primary investment slowed from -1.2 per cent to -3.4 per cent; and secondary investment slowed from 3.4 per cent to 2.1 per cent.
  • Chinese property investment rose by 10.5 per cent in the eight months to August on a year earlier, down from 10.6 per cent in the seven months to July.
  • The unemployment rate (nationwide survey-based jobless rate) eased from 5.3 per cent to 5.2 per cent in August. The jobless rate in the survey of 31 major cities was 5.2 per cent. China created 9.84 million new urban jobs in the eight months to August.

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 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.
  • China’s National Bureau of Statistics releases its monthly economic statistics around mid-month. Quarterly GDP data is released around the 19th of January, April, July and October. China’s Customs Office releases trade data, and the People’s Bank of China releases financial statistics, around the 10th of each month. China is Australia’s largest trading partner and changes in the Chinese economy have major implications for the Aussie economy.

What are the implications for interest rates and investors?

  • Oil prices may remain modestly elevated until full production resumes in Saudi Arabia. Higher prices would boost investor interest in the energy sector on the Australian Stock Exchange but would be negative for consumer staples and consumer discretionary sectors.
  • The on-going tensions in the Middle East and the tensions between the US and Iran both have scope to keep oil prices elevated for an extended period (geopolitical risks).
  • The OPEC+ group (OPEC plus Russia) recently confirmed a production agreement that is designed to support prices. If Saudi oil production is constrained, the agreement may be suspended to allow other producers to fill the void. Also worth noting is that US oil production is close to record highs.
  • Overall, higher oil prices are only expected to be maintained for a short period. If prices were higher for a sustained period, we would expect central banks to be more aggressive in cutting interest rates. Governments may also be more active in injecting fiscal stimulus into local economies.
  • At present, motorists are paying slightly less at the petrol pump than a year ago. But motorists should get used to pump prices hovering around $1.40-$1.50 a litre.
  • The Commonwealth Bank Group economists expect a rate cut in November and a follow up rate cut in February 2020.

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