Oil prices slide: Energy sector loses 1.3% last week       

Latest economic data

• The US Nymex oil price fell by 10 per cent last week. The S&P/ASX 200 Energy sector fell 1.3 per cent.
• According to the Australian Institute of Petroleum, last week the average Australian pump price for unleaded petrol fell by 5.2 cents a litre to 193.7 cents a litre (wholesale price 178.8c/l), down from 17-week highs.
• The retail discounting cycle began two weeks ago in Sydney, Melbourne & Brisbane and prices have fallen by between 13-22 cents a litre. Adelaide recorded the cheapest petrol price on average over the past three months, 10c below that of Melbourne.

The Big Picture

• Two key developments last week. US Federal Reserve presidents have turned “hawkish” (favouring higher interest rates to combat inflation). While this may just be jawboning or “open mouth operations” (OMO) to drive down inflation expectations, there is still scope for further significant rate hikes in the months ahead. Higher interest rates are likely to lead to less spending and slower economic activity, crimping demand for energy and transport commodities such as oil.
• The second factor last week was news of an increase of Chinese Covid-19 cases, raising worries about future fuel demand. In fact, current demand is falling faster than OPEC+ production cuts. But the move will be short-lived if OPEC+ decides on larger supply cuts when it meets on December 5.
• Over the week oil prices fell sharply – good news for inflation, the cost of living and consumer spending, but bad news for energy producers. Last week energy sector shares fell by 1.3 per cent while the ASX 200 and All Ordinaries indexes were broadly flat.

The Equity Lens: What does it mean for investors?

• The energy sector has out-performed massively over 2022 but a re-assessment by investors may be underway. A global recession or further weakness of the Chinese economy would serve to reduce demand for energy commodities like oil and gas. The fly in the ointment is what OPEC producers decide to do on production quotas.

What do you need to know?

Weekly oil market update

• Global oil prices fell by around 2 per cent on Friday. Investors are worried about the potential for further aggressive US rate hikes. And investors are concerned about the likelihood of weaker Chinese oil demand with Covid cases still rising.
• The Brent crude oil price fell by US$2.16 or 2.4 per cent to US$87.62 a barrel. And the US Nymex crude oil price fell by US$1.56 or 1.9 per cent to US$80.08 a barrel. Over the week Brent fell by US$8.37 or 8.7 per cent. And Nymex fell by US$8.88 or 10 per cent.
• The Singapore benchmark gasoline price fell by US$2.82 a barrel or 2.8 per cent last week to US$98.58 a barrel. In Australian dollar terms, Singapore gasoline fell by US$6.10 or 4 per cent to a 7-week low of $147.05 a barrel.
• According to the Australian Institute of Petroleum (AIP), the national average unleaded petrol price fell by 5.2 cents a litre last week to 193.7 cents a litre (c/l).
• Metropolitan pump prices fell by 7.6 cents to 193.6c/l and regional prices fell by 0.4 cents to 193.7c/l in the past week.
• The national average wholesale (Terminal Gate Price or TGP) petrol price rose by 0.2 cents last week to 178.8c/l. Today, the TGP is near 175.2c/l, down 5.9 cents on a week ago.
• MotorMouth records the following average retail prices for unleaded fuel today: Sydney 192.8c/l; Melbourne 189.7c/l; Brisbane 190.9c/l; Adelaide 171.8c/l; Perth 179.9c/l; Hobart 194.5c/l; Darwin 189.3c/l and Canberra 188.5c/l.