Households $25 a week better off with lower petrol prices: Craig James

Households $25 a week better off with lower petrol prices: Craig James
Households $25 a week better off with lower petrol prices: Craig James

GUEST OBSERVER

Filling up the car with petrol is the single biggest outlay by families each week. And while some may say ‘food’ is the biggest outlay, that category encompasses a raft of items in the shopping trolley. So petrol prices are super-important for household budgets. And despite what sharemarket investors may think, the lower crude oil price is a positive development, meaning more spending power for consumers. In essence it acts like a de facto rate cut.

The Singapore gasoline price plunged in Australian dollar terms last week and now is not far off the best (lowest) levels recorded in the past seven years. So the outlook remains positive for motorists. Much will now depend on margins – the gross wholesale margin and gross retail margin – to determine how motorists end up faring at the petrol pump.

There hasn’t been much change in the gross wholesale margin (gap between the Australian terminal gate price and Singapore gasoline price) over recent years. But the gross retail margin (gap between the pump price and terminal gate price) has trended higher over time.

The wholesale petrol price is near 105 cents a litre. Assuming ‘normal’ margins, the national pump price should ease to 116 cents a litre. Add in the 3 cent fall in the Singapore gasoline price and motorists should see pump prices fall up to 7 cents a litre over the next 7-10 days.

Driven by competitive pressures, petrol prices in Sydney, Melbourne and Adelaide have scope to fall to levels of 100-105 cents a litre in the current discounting cycle.

What do the figures show?

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Households  a week better off with lower petrol prices: Craig James

Petrol prices

According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol fell by 1.9 cents per litre to 120.00 cents per litre in the week to January 17. The metropolitan petrol price fell by 2.4 cents to 118.9 cents per litre while the regional price fell by 1.0 cents to 122.2 cents per litre.

The national average Australian price of diesel petrol fell by 0.8 cents to 121.4 cents per litre in the week to January 17. Last week the metropolitan price fell by 0.6 cents to 120.7 c/l, while the regional average price fell by 1.0 cents to 122.0 c/l.

Average unleaded petrol prices across states and territories over the past week were: Sydney (down by 3.7 cents to 119.2 c/l), Melbourne (down 6.1 cents to 113.6 c/l), Brisbane (up 5.9 cents to 127.3 c/l), Adelaide (down 9.9 cents to 109.6 c/l), Perth (up 0.2 cents to 120.2 c/l), Darwin (down by 0.5 cents to 125.2 c/l), Canberra (down 0.1 cents to 126.1 c/l) and Hobart (down by 0.6 cents to 130.0 c/l).

Today the national average wholesale (terminal gate) unleaded petrol price stands at 104.7 cents per litre, down 2.2 cents per litre on a week ago. The terminal gate diesel price stands at fresh 11-year lows of 91.5 cents a litre, down 3.3 cents over the week.

The difference between the weekly average retail unleaded petrol price and the weekly average wholesale terminal gate price was 13.8 cents a litre last week, down from 15.6 cents but still above longer-term averages of around 10-11 cents a litre.

Last week the key Singapore gasoline price fell by US$4.10 or 7.7 per cent to US$48.95 a barrel. In Australian dollar, in local terms the Singapore gasoline price fell by $4.68 a barrel or 6.2 per cent to $70.45 a barrel or 44.31 cents a litre. The figure of 44.31c a litre was the lowest in a year and second lowest result in seven years.

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's 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.

What are the implications for interest rates and investors?

The lower crude oil price is positive for consumers and businesses, lifting spending power. At the same time, the lower petrol price will keep downward pressure on the headline inflation rate.

As we noted last week, in the December quarter the petrol price fell by around 6.3 percent, taking off around 0.2 percentage points from the quarterly Consumer Price index. The headline inflation rate was probably little changed at a 1.5-1.6 percent annual rate in the December quarter (data due on January 27).

Once OPEC oil producers conclude that the oil price has fallen far enough, investors will pay more attention to the positive effects of low fuel prices for consumers and businesses, and therefore retailers and other consumer focussed businesses.

The average household is around $25 a month better off from the lower petrol price than in July last year.

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Households  a week better off with lower petrol prices: Craig James

Craig James is the chief economist at CommSec.

Craig James

Craig James

Craig James is the Chief Economist at CommSec, interpreting ‘big picture’ economic and financial trends.

Tags: 
Petrol Prices Household Savings

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