International slumps point to plunge in petrol prices
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 the US's West Texas Intermediate crude dipped below $US92 ($88.50) a barrel at one stage, with traders talking about a price in the 80s being 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 at week's end.
Figures supplied by the Australian Institute of Petroleum show MOPS95 fell from about $119 a barrel a week ago to nearly $111.
Australian Institute of Petroleum 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 while the cheapest shopper docket discounted blends should fall below $1.20 a litre.
Cheaper petrol prices have an impact on consumers' disposable income and, potentially, consumer confidence and retail sales.
The broader issue of international oil prices can be argued as favouring 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, meanwhile, 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 say plenty about how markets are ignoring North Korea's posturing.
The show being put on appears to be entirely for domestic consumption - and North American political talk shows.
While gold recovered slightly on Friday night from a 21-month low in US dollar terms, that was after weak US employment figures, not international tension.
Frequently Asked Questions about this Article…
Australian petrol prices are expected to fall because Singapore refinery benchmarks plunged in Australian dollar terms. The drop reflects a slump in international oil prices, higher regional refinery stocks and a stronger Australian dollar — all of which typically flow through to local bowser prices.
Based on the latest Singapore numbers, petrol could dive by more than 9¢ a litre. The Australian Institute of Petroleum’s data showed a national average of $1.44/L last week; if Singapore prices flow through in the usual one to two weeks and remain down, the average could be about $1.35/L in a fortnight and the cheapest discounted blends could fall below $1.20/L.
While Brent crude and US West Texas Intermediate (WTI) set broad international direction, Australian petrol is more closely correlated with regional benchmarks such as Singapore’s Tapis crude and the MOPS95 petrol benchmark — changes in those benchmarks have the biggest impact on local pump prices.
MOPS95 is a Singapore petrol benchmark used to price regional petrol supply. The article notes MOPS95 plunged from about $119 a barrel a week ago to nearly $111, and because Australian retail petrol tracks MOPS95 closely, that fall helps explain the expected drop at the bowser.
Cheaper petrol can boost motorists’ disposable income, which may lift consumer confidence and retail sales. The article explains the debate: bears say soft oil signals a weak economy, while bulls argue lower fuel bills free up spending for households and industry.
Price moves are also driven by factors such as rising US crude stockpiles as new supplies come online, very cheap gas, and regional economic trends — for example, a European recession cutting fuel demand while China continues strong growth and has become the world’s biggest oil importer.
Backwardation — where future months trade cheaper than the spot month — suggests near-term supply or price strength will ease, which the article says bodes well for Australian motorists because it supports lower prices heading to the pump.
According to the article, commodity markets appear to be ignoring North Korea’s posturing; prices imply the market views much of that activity as theatrics for domestic audiences. Recent moves in gold were linked to weak US employment data rather than international tension.
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