Australian motorists are expected to reap the benefits at the petrol bowser from a plunge in world oil prices, but the relief could provide a new headache for the Reserve Bank of Australia when it comes to meeting its inflation targets.
While petrol prices crept towards the psychological $2 a litre mark late last year – on the back of a higher Australian dollar and surging oil prices – analysts are now predicting a glut in supply that should provide some relief to motorists.
Global oil prices have been falling for the last two to three weeks, amid concerns about the slowing US economy and Donald Trump’s trade war with China.
The price plunged further last Friday night on the back of President Trump announcing import tariffs on Mexico.
There has also been growing oil reserves, which is putting pressure on wholesale prices and that should flow through to the retail price from next week, according to RACQ spokesman Paul Turner.
“The great news for drivers is global oil prices are falling and it’s become visible here in Australia with lower local bowser prices,” he said.
“What it means is the major capital cities, where there are petrol cycles, is the bottom of the cycle will be lower, and then when servos hike their prices again, they should also be lower.”
The RBA, which cut the cash rate by 0.25 percentage points to 1.25 per cent on Tuesday, predicted inflation would pick up in the June quarter on the back of increases to petrol prices.
“The central scenario remains for underlying inflation to be 1.75 per cent this year, 2 per cent in 2020 and a little higher after that,” RBA governor Philip Lowe said on Tuesday.
But lower petrol prices may make it harder for the RBA to keep inflation in its band of 2 to 3 per cent.
Watching margins
The Australian Competition and Consumer Commission has been keeping a close eye on retail margins for petrol companies, which in the past have failed to pass on the full benefits to motorists.
The ACCC report for the March quarter found the average retail price across the five largest cities was $1.30 a litre. This was well down from the December quarter average price of $1.42.
Petrol prices were at a two-year low ($1.15 a litre) in January but began creeping up in late March to $1.44 a litre.
Australian motorists are, as usual, hostage to international oil prices and fluctuating currency. Brent oil prices have fallen to $US60 a barrel, which is $US16.60 lower than two weeks ago.
Morgan Stanley analysts said the sharp plunge in oil price was rare and usually associated with recessions, but this drop had probably more to do with slowing demand.
“There is growing evidence of a sharper than expected slowdown in demand,” equity analyst Martijn Rats said in a research note.
“Data from eight early-reporting countries, which collectively account for about 50 per cent of global oil demand, shows that year-on-year growth ground to a halt across March and April.
“Finally, weaker demand growth would be consistent with the broader economic slowdown reflected in a range of indicators.”
Extracted from AFR