Cheaper petrol in the pipeline for motorists
Singaporean prices plunged in Australian dollar terms, reflecting a slump in international oil prices, regional refinery stocks and our currency's strength.
The main international benchmark, Brent crude, closed at an eight-month low on Friday night and America's West Texas Intermediate crude dipped below $US92 a barrel at one stage, with traders talking about a price in the $80s possible in coming weeks.
But Australian petrol prices are more closely correlated to Singapore's Tapis crude - and much more closely correlated to Singapore's MOPS95 petrol benchmark, which plunged spectacularly last week.
Figures supplied by the Australian Institute of Petroleum show MOPS95 fell from about $119 a barrel a week ago to nearly $111.
AIP figures show the national average retail petrol price last week was $1.44 a litre. If the Singaporean prices take their typical one to two weeks to flow through to local bowsers and prices remain down, the average price should be about $1.35 in a fortnight.
Lower petrol prices have a marked affect on consumers' disposable income and, potentially, consumer confidence and retail sales.
The broader issue of international oil prices can be argued as favouring both bears and bulls. The bears point to soft oil prices as an indicator of a weak economy, while bulls see the glass half full - cheaper oil means more spending money for motorists and lower fuel bills for industry.
Present prices do not simply match changes in economic sentiment, but are affected by other factors. For example, US crude stockpiles have been steadily building as more oil comes on stream from new sources - never mind the bigger issue of the impact of extremely cheap gas.
The European recession reduces demand for fuel, but China continues to grow strongly and has replaced the US as the world's biggest importer of oil.
European gas and oil futures markets are in backwardation - future months are trading more cheaply than the spot month - which bodes well for the hip pockets of Australian motorists.
Commodity prices in general are saying plenty about how markets are ignoring North Korea's posturing.
While gold recovered slightly on Friday night from a 21-month low in US dollar terms, that was on the back of weak US employment figures, not international tension.
Frequently Asked Questions about this Article…
Singapore refinery petrol benchmarks plunged in Australian-dollar terms because of a slump in international oil prices, higher regional refinery stocks and a stronger Australian dollar. Those Singapore prices typically flow through to local pumps in one to two weeks, so Australian retail petrol is expected to fall.
Based on the latest Singapore MOPS95 movements and recent averages, analysts expect Australian petrol to dive by more than 9¢ a litre. With the national average at about $1.44 per litre last week, the average could be around $1.35 a litre within a fortnight if prices remain down.
Australian petrol prices are more closely correlated to Singapore's Tapis crude and, even more directly, to the Singapore MOPS95 petrol benchmark rather than just Brent or WTI crude.
MOPS95 fell sharply from about $119 a barrel a week ago to nearly $111. At the same time, Brent crude closed at an eight‑month low and US West Texas Intermediate dipped below US$92 a barrel at one stage.
Lower petrol prices boost motorists' disposable income and can lift consumer confidence and retail sales, which may help domestic economic activity. Investors should also note the alternative view: soft oil can signal a weak global economy, which has mixed implications for markets.
Supply-side factors such as steadily building US crude stockpiles, new oil sources coming on stream, regional refinery stocks, and the strength of the Australian dollar all affect prices. Geopolitical posturing (for example, around North Korea) has had limited impact on commodity prices according to recent moves.
Backwardation means future contract months trade cheaper than the spot month. European gas and oil markets are in backwardation, which the article says bodes well for Australian motorists because it suggests lower near‑term prices or less upward pressure on pump prices.
A European recession reduces fuel demand and puts downward pressure on prices, while strong growth in China—now the world's biggest oil importer—supports demand. The net price outcome reflects the balance between weaker demand in some regions and stronger demand in others.
Call 1300 880 160
Start a chat
Schedule a call
