$1 petrol tipped as oil takes dive
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 about $US32 at one point yesterday.
The ASX energy sector had plummeted 19 per cent, more than twice the dive of any other sector.
“It’s just absolutely amazing,” said Stephen Innes, a Thailand-based Asia-Pacific market strategist at AxiCorp.
“Investors are absolutely shell-shocked.”
They probably went to bed on Sunday night thinking there could be blood in the streets and woke 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 … You have to respect it.’’
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 $US1-a-barrel fall in the oil price leads to a 1¢ 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.
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.