$1-a-litre petrol on the cards amid plummeting oil prices


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As if there wasn’t enough global uncertainty already, a likely price war has broken out over the price of oil.

The OPEC+ alliance between Saudi Arabia and Russia to prop up oil prices collapsed over the weekend, with both countries expected to ramp up production in a stunning reversal of policy.

Brent crude futures, which had traded as high as $US65 a barrel as recently as January, plunged from $US45 a barrel on Friday to around US$32 at 1451 AEDT on Monday.

The ASX energy sector had plummeted 19 per cent, more than twice the dive of any other sector.

Santos fell 26.0 per cent to a two-year low of $4.96, Woodside Petroleum dropped 18.3 per cent to a 15-year low of $21.83 and Oil Search fell 32.5 per cent to a 13-year low of $3.435.

“It’s just absolutely amazing,” said Stephen Innes, a Thailand-based Asia Pacific Market strategist at AxiCorp.

“Investors are absolutely shell-shocked.”

They likely went to bed on Sunday night thinking there could be blood in the streets and awoke to find their nightmare fully realised, he said.

Still, Mr Innes said he thought there was a chance Russia and Saudi Arabia might come back to the bargaining table and reach a deal.

It was in neither country’s interest to allow the price of Brent crude to plummet to as low as near $US20 a barrel, as one Goldman Sachs analyst is predicting.

“Oil has such a breadth of significance across a range of assets,” Mr Innes said.

“It touches gold, it touches currency, it touches stock markets, it basically touches every asset class. You have to respect it.

“We have a big problem on our hands right now.”

Still it could mean good news for Aussie motorists, with CommSec chief economist Craig James predicting petrol prices could also drop dramatically.

“The ready-reckoner is that every US$1 a barrel fall in the oil price leads to a 1.0 cent fall at the petrol bowser. Provided the Aussie dollar is reasonably stable, motorists may be able to look forward to filling up for near $1 a litre,” he wrote in a research note.

Fuel prices in Australia’s capital cities on Sunday ranged from an average of $1.19 a litre in Adelaide to $1.536 in Hobart, according to Motormouth.com.au.

In Sydney, petrol was selling for $1.248, while it cost an average of $1.239 in Melbourne.

While cheap oil is expected to make some US shale oil producers unprofitable, that shouldn’t be the case for Australian producers, said EnergyQuest chief executive Graeme Bethune.

Oil Search has said it expects its production costs this financial year to be $US11 to $US12 a barrel, while Santos is predicting a production cost of $US7 to $US7.40 a barrel, according to its annual report.

But cheap oil “reduces their profitability, it reduces their cashflow, it reduces the funds they have for exploration and for dividends,” Dr Bethune said.

For consumers, cheap oil will likely mean cheaper petrol prices, although the recent dip in the Australian dollar will discount that somewhat, Dr Bethune said.


The Indian Telegraphhttps://theindiantelegraph.com.au/
Established in 2007, The Indian Telegraph is a multi award winning digital media company based in Australia.

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