Stephen Cauchi | August 10, 2015 – 4:31PM
Oil might have reached fresh six-year lows on Monday, but economists are warning motorists not to expect petrol to plunge below $1 a litre, as happened in January.
Thanks to refineries and retailers not passing savings on to consumers, as well as the falling Australian dollar, petrol is staying in the $1.30-$1.40 range it has traded in since February.
In January, a number of Sydney petrol stations sold unleaded for 99¢ a litre. Before that the last time the average national petrol price was below a dollar was in the week of February 12-20, 2005.
By contrast, in the week to August 9 the national average Australian price of petrol rose by 0.8¢ a litre to 138.5¢, the Australian Institute of Petroleum said.
Average unleaded prices in Sydney were 136.7¢ and in Melbourne 142.3¢ a litre.
The reason it is not lower is an apparent mystery, given that Brent crude reached $US43.70 ($59.13) a barrel on Monday – a six-year low. It has fallen 20 per cent in the past month, from $US60 a barrel.
Part of the reason petrol prices haven’t reached January’s lows is because the Australian dollar has fallen from US82¢ to US74¢ in that time.
Savings not being passed on
But another reason that has been mooted is that the margin between the wholesale petrol price and the retail petrol price has increased. Savings from cheaper oil are not being passed on to consumers in the form of cheaper petrol by retailers and refineries.
“Petrol prices lifted for the second consecutive week and motorists certainly have the right to question why,” Commsec said. “Global oil prices are continuing to fall, the Aussie dollar has held up well and yet domestic pump prices have lifted in the past fortnight.”
The explanation that margins have increased was correct, Commsec said. The raw margin between the retail price and the wholesale price rose to 12.4¢ in the past fortnight – well-above the five-year average of 9.3¢.
Part of the reason, Commsec chief economist Craig James said, was that when prices were falling service stations had to sell high-priced fuel first before selling cheaper fuel. This meant margins tended to expand as wholesale prices came down.
“We have seen these things in the past,” Mr James said. “You get a bit of a spike in the margin and then it will come off. It tends to go in waves … these things tend to go in ebbs and flows.”
The rise in margins would not be permanent, he said.
“It’s not as though the market is absolved from competition. There’s fairly significant competitive forces.”
However, if oil prices continued to drop, that would continue to put significant pressure on the petrol price, he said.
London-based Capital Economics blamed the weakness in oil on three factors: signs of a rebound in the US rig count, the drop in the Chinese sharemarket, and the prospect of more exports from Iran resuming.
The fall in spot prices over the past month had led a downward shift in the Brent futures curve, it said.
However, it noted the short end of the curve had fallen much further than the long end.
Capital’s forecast for Brent was $US55 a barrel for the end of 2015 and $US60 for the end of 2016.
Extracted in full from smh.com.au