Relief in sight for motorists as oil prices slide

Motorists may get some relief when they fill up the tank in the coming months as the price of oil slides amid signs of a slowdown in major economies.

On Thursday, West Texas Intermediate crude oil – one of the major benchmarks for oil prices – dropped below $US70 a barrel to a nine-month low, while Brent crude traded below $US73 a barrel after losing almost 8 per cent since the start of the week.

Fuel prices hit a six-month low of $1.86 a litre at the start of this month across Melbourne and Sydney.Credit: Dion Georgopoulos

Last month, the typical capital city household’s average weekly outlay on fuel crept above $100, according to the Australian Automobile Association’s transport affordability index.

But fuel prices in Sydney and Melbourne have fallen from more than $2 a litre in March to less than $1.86 a litre at the start of this month.

And prices at the bowser could ease further after crude oil prices plunged this week.

AMP deputy chief economist Diana Mousina said petrol and oil prices tended to move broadly in line with each other, but falls at the bowser would depend on whether the movement in oil prices was sustained.

“It won’t affect the day-to-day price of petrol,” she said. “But if oil prices remain sustainably below $US70 a barrel, then we might see further weakness in petrol prices.”

While petrol prices move broadly in line with global oil prices, the local price cycle tends to be determined by petrol retailers. In cities such as Sydney and Melbourne, petrol prices take a fortnight to move from their lowest to highest point and then another month or so to bottom out again.

ANZ senior economist Catherine Birch said the crude oil market was being driven down by concerns about weakening demand for the commodity, even as the major body of oil producers – the Organisation of the Petroleum Exporting Countries (OPEC) – looks to lift supply.

“The crude oil market remained in the grip of bearish investors, as demand concerns overshadow OPEC moves to stabilise the market,” she said.

Bloomberg reported OPEC members were close to agreeing on a plan to boost supply by 180,000 barrels a day next month. However, rumours have been circulating that it may delay the planned increase as Libya considers increasing its supply by more than 500,000 barrels a day.

Weak economic data out of China and the United States, both major consumers of the world’s oil, is also weighing on the oil price.

China’s factory activity shrank for a fourth straight month in August, raising concerns about the outlook for its oil demand, while the US also reported a slide in economic activity.

However, Mousina said that over time there had been less correlation between world oil prices and the amount paid by consumers at the pump.

“There’s been a bigger margin between petrol and oil prices, especially over the past six to 12 months,” she said, suggesting refineries and petrol stations might be pocketing more of the difference.

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