Petrol lifts 8% in June quarter, stoking inflation

Oil market update

• What happened? Global oil prices jumped by around 2 per cent on Friday as traders reacted to falling US inventories and signs of stronger demand from both China and India.  The People’s Bank of China said it will cut the Reserve Requirement Ratio for major commercial banks by 50 basis points, in an attempt to boost liquidity and maintain economic momentum.
• Implications: High oil prices have three notable effects. Higher prices potentially lift revenues for energy producers; rising oil prices lift inflation rates; and higher oil prices potentially reduce spending power for consumers and businesses. The averaged unleaded pump price hit 18-month highs last week. Over the June quarter, petrol rose 8 per cent, boosting inflation in the quarter.

What does it all mean?

• There are a raft of factors influencing oil markets at present. There are rising Covid-19 case numbers across the globe. But at the same time, vaccination rates are rising. Then there is the debate amongst OPEC+ oil producers about whether to maintain production quotas or whether to lift production and thus prevent oil prices rising too far, too fast. And then there are the debates about what monetary settings central banks should be maintaining. The Chinese central bank eased policy on Friday, but other central banks are starting to pare back – or at least talk about paring back – the rate of bond purchases.
• The bottom-line is that investors need to be alert. Oil prices remain near 3-year highs but eased slightly over the past week. And prices could go either way in the near future depending on how the OPEC+ disagreement is resolved. The United Arab Emirates is blocking attempts by other producers to lift output, disagreeing with the calculation of quotas. If OPEC+ was to splinter, countries may decide to lift production, driving down prices. But if the current agreement is maintained and OPEC+ doesn’t ease up on production curbs, oil prices could drive even higher than current lofty levels.
• Our Commonwealth Bank commodities strategist, Vivek Dhar, now forecasts Brent oil prices to peak at US$85 a barrel in the December quarter on the expectation that additions to supply (from OPEC+ and non-OPEC+ producers) won’t match rising demand as economies re-open. But looking into 2022, CBA expects Brent prices to ease to US$78/bbl in March 2022, US$75/bbl in June and to retrace to US$72/bbl by end 2022.
• After rising 9 per cent in the March quarter, petrol jumped another 8 per cent in the June quarter. The lift in petrol prices is less ‘transitory’, stoking fears of higher inflation.

What do you need to know?

Weekly oil market

• Global oil prices jumped by around 2 per cent on Friday as traders reacted to falling US inventories and signs of stronger demand from both China and India. Brent crude rose by US$1.43 or 1.9 per cent to US$75.55 a barrel. And the US Nymex price gained US$1.62 or 2.2 per cent to US$74.56 a barrel. But for the week, both the Brent and Nymex prices were down 0.8 per cent – only the first weekly loss for the Nymex since May.
• Last week the key Singapore gasoline price fell by US13 cents or 0.2 per cent to US$85.95 a barrel. But in Australian dollar terms, the Singapore gasoline price rose by 43 cents or 0.4 per cent to a 21-month high of $115.73 a barrel or 72.78 cents a litre.
• Last week the national average price of unleaded petrol rose by 0.3 cents a litre to 153.8 cents per litre (c/l), according to the Australian Institute of Petroleum. The national average wholesale (TGP) petrol price was up by 2.4 cents last week to 136.8 cents per litre and stands at 138.4 cents a litre today.  The gross retail margin is 17 cents a litre, up from the two-year average of 16 cents a litre.
• MotorMouth records the following average retail prices for unleaded fuel in capital cities today: Sydney 156.5c/l; Melbourne 151.5c/l; Brisbane 158.4c/l; Adelaide 164.1c/l; Perth 139.2c/l; Hobart 150.6c/l; Darwin 147.0c/l and Canberra 150.7c/l.