According to the Australian Institute of Petroleum, the national average price of unleaded petrol fell by 6.7 cents a litre last week to 149.4 cents a litre – the biggest weekly fall since the week ended 30 November 2008 (down 7 cents a litre).

What does this mean?

It was only two weeks ago that petrol prices were at decade-high levels. But unleaded prices have fallen by 11.1 cents a litre over the past fortnight. And last week the national average petrol price fell by 6.7 cents a litre. Pump prices in Adelaide (down 19.2 cents a litre), Brisbane (down 9.6 cents a litre), Sydney (down 9 cents a litre) and Melbourne (down 8.8 cents a litre) all plunged. But prices still remain around the “new normal” price of $1.50 a litre on average across Australia. 

Will prices keep falling? 

The regional Singapore benchmark gasoline price has fallen by 21 cents a litre from recent highs and Australia’s wholesale petrol price has fallen by 15 cents, implying a further fall of around 5-7 cents a litre over the next fortnight, subject to the vagaries of the retail petrol price discounting cycle. The average motorist may now end up paying around $18 less to fill a 70 litre tank compared with the beginning of October.

Why have prices fallen?

The catalyst for falling petrol prices has been the near 20% decline in Brent crude and USNymex oil prices after reaching 4-year highs in early October. In fact, the Nymex price has fallen for 10 successive days – the longest stretch of declines since July 1984.

Last week, the price of Brent crude oil fell by 3.6% to US$70.18 a barrel and the Nymex price declined by 4.7% to US$60.19 a barrel. With the US, Russia and Saudi Arabia pumping near record-high crude at 33 million barrels per day, supply has outpaced demand. And Iranian supply constraints will be less-than-expected with the US granting waivers to several countries.

What are the implications for investors?

The weakening in fuel prices is timely. It also coincides with a sharp fall in electricity prices in Sydney, Brisbane and Adelaide, in particular, over the year to September. Combined with declining childcare prices, Aussie consumers may have a bit more spare change to put to work at shopping centres for the upcoming Christmas trading season. That said, concerns about falling home prices may act as a deterrent.

It was only a few weeks ago that some oil market analysts were forecasting a return to US$100 a barrel crude oil prices, but investor sentiment has turned sharply. The volatility in prices serves to highlight that motorists remain captive to OPEC producers. With prices plunging, OPEC has announced over the weekend that they may cut oil supply in 2019. In fact, Saudi Arabia has already said that it will export 500,000 fewer barrels a day in December than November with Iranian waivers coming into effect. But Russia appears unconvinced, with Energy Minister Alexander Novak reported as saying “it’s hard to say” whether oil markets will be oversupplied next year.  

While OPEC’s meeting in Vienna next month will be closely observed by oil analysts, the vagaries of the retail unleaded petrol price discounting continues. Pump prices may lift from cyclical lows next week as the discounting cycle comes to an end in Sydney, Brisbane and Adelaide.