Ryan Felsman, Senior Economist, CommSec Twitter: @CommSec IMPORTANT INFORMATION AND DISCLAIMER FOR RETAIL CLIENTS The Economic Insights Series provides general market-related commentary on Australian macroeconomic themes that have been selected for coverage by the Commonwealth Securities Limited (CommSec) Chief Economist. Economic Insights are not intended to be investment research reports. This report has been prepared without taking into account your objectives, financial situation or needs. It is not to be construed as a solicitation or an offer to buy or sell any securities or financial instruments, or as a recommendation and/or investment advice. Before acting on the information in this report, you should consider the appropriateness and suitability of the information, having regard to your own objectives, financial situation and needs and, if necessary, seek appropriate professional of financial advice. CommSec believes that the information in this report is correct and any opinions, conclusions or recommendations are reasonably held or made based on information available at the time of its compilation, but no representation or warranty is made as to the accuracy, reliability or completeness of any statements made in this report. Any opinions, conclusions or recommendations set forth in this report are subject to change without notice and may differ or be contrary to the opinions, conclusions or recommendations expressed by any other member of the Commonwealth Bank of Australia group of companies. CommSec is under no obligation to, and does not, update or keep current the information contained in this report. Neither Commonwealth Bank of Australia nor any of its affiliates or subsidiaries accepts liability for loss or damage arising out of the use of all or any part of this report. All material presented in this report, unless specifically indicated otherwise, is under copyright of CommSec. This report is approved and distributed in Australia by Commonwealth Securities Limited ABN 60 067 254 399, a wholly owned but not guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124. This report is not directed to, nor intended for distribution to or use by, any person or entity who is a citizen or resident of, or located in, any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or that would subject any entity within the Commonwealth Bank group of companies to any registration or licensing requirement within such jurisdiction.

Economics | April 27, 2020

Petrol prices hit 15-year low Singapore gasoline prices at 21-year lows Weekly Petrol Prices; China data Petrol prices: According to the Australian Institute of Petroleum, the national average price of unleaded

petrol fell by 6.6 cents to a 15-year low of 100.6 cents a litre last week (lowest since February 2005).

MotorMouth records the following average retail prices for unleaded fuel in capital cities today: Sydney 91.3c; Melbourne 94.0c; Brisbane 88.6c; Adelaide 86.10c; Perth 88.8c; Canberra 114.3c; Darwin 119.0c; Hobart 125.6c. Sydney, Perth and Adelaide prices are around 17-year lows. And pump prices are at 15-year lows in Brisbane and Melbourne. Prices at the bowser are at 11-year lows in Canberra.

Fuel prices to fall: The Singapore benchmark gasoline price – the largest component of fuel prices paid by motorists – hit fresh 21-year lows of US$18.30 a barrel last week. In Australian dollar terms, the Singapore gasoline price fell by $5.27 a barrel or 15.4 per cent to $28.85 a barrel or 18.15 cents a litre.

China data: Profits earned by industrial firms fell at a 36.7 per cent annual rate in March from a year ago (consensus: -48.7 per cent). Profits had fallen by 38.3 per cent in January/February from a year earlier.

Movements in the petrol price can affect consumer spending, and in turn, prospects for retailers.

What does it all mean? Aussie motorists are big beneficiaries of the collapse in global crude oil prices. In fact, retail unleaded petrol

prices are near 17-year lows in Adelaide, Perth and Sydney today, according to fuel app MotorMouth. And pump prices are at 15-year lows in Brisbane and Melbourne. Prices at the bowser are at 11-year lows in Canberra.

Queenslanders and Western Australians are certainly encouraged to fill up. Stay-at-home COVID-19 restrictions will be eased later this week in the Sunshine State with drivers permitted to travel 50 kilometres from home to enjoy some recreational activities with their families. And the Western Australian government has also announced the partial lifting of restrictions, allowing picnics, boating, hiking and camping in groups of 10 people or less.

The global oil market is in crisis as leading producers struggle to curb supply sufficiently to counter the huge destruction in demand from the COVID-19 crisis. The global economic lockdown has reduced consumer demand with commuters working from home, factories shut down and airlines hit by travel bans.

And spare a thought for the petroleum industry. The downturn has huge implications for jobs, companies and the communities reliant on the sector as contracts and projects are abandoned.

The economic impact of the virus crisis has seen oil producers and refiners begin to cut production and processing as the industry runs out of storage facilities amid a huge supply glut. US onshore oil rigs in operation fell by 60 rigs – the most in 14 years – to 378 last week according to Baker Hughes.

April 27, 2020 2

Economic Insights. Petrol prices hit 15-year low

US crude oil prices resumed their downward spiral in trading this morning as supply worries resurfaced. US Nymex crude futures were down around 6.6 per cent to near US$15.81 a barrel. But Brent crude prices were up around 0.3 per cent to near US$21.50 a barrel. Oil prices had lifted on Friday, bringing an end to another week of losses that featured the May US Nymex contract plunging to almost minus US$40 a barrel.

What do the figures show? Petrol prices

According to the Australian Institute of Petroleum, the national average price of unleaded petrol fell by 6.6 cents to a 15-year low of 100.6 cents a litre last week (since February 2005). The metropolitan price fell by 6.5 cents to 96.2 cents a litre and the regional price was down 6.8 cents to 109.6 cents a litre.

Average unleaded petrol prices across states and territories over the past week were: Sydney (down 6.5 cents to 93.9 c/l), Melbourne (down by 8.3 cents to 96.7 c/l), Brisbane (down by 7.1 cents to 90.7 c/l), Adelaide (down by 7.7 cents to 98.3 c/l), Perth (down by 1.6 cents to 97.3 c/l), Darwin (down by 2.4 cents to 120.9 c/l), Canberra (down by 4.0 cents to 116.8 c/l) and Hobart (down by 4.7 cents to 127.5 c/l).

The smoothed gross retail margin (2-month rolling average) for unleaded petrol rose from 22.73 cents a litre to a record high of 23.79 cents (24-month average: 13.6 cents a litre).

The national average diesel petrol price fell by 3.9 cents to 3-year lows of 125.0 cents a litre over the past week. The metropolitan price fell by 3.5 cents to 123.9 cents a litre and the regional price was down by 4.0 cents to 126.0 cents a litre.

Last week the national average wholesale unleaded petrol price (terminal gate or TGP) was down by 0.8 cents to 81.9 cents per litre. Today, the average unleaded TGP stands at 82.8 cents a litre, up by 1.9 cents over the week. The terminal gate diesel price stands at a 4-year low of 93.1 cents a litre, down by 2.7 cents over the week.

MotorMouth records the following average retail prices for unleaded fuel in capital cities today: Sydney 91.3c; Melbourne 94.0c; Brisbane 88.6c; Adelaide 86.10c; Perth 88.8c; Canberra 114.3c; Darwin 119.0c; Hobart 125.6c.

The key Singapore gasoline price fell from US$21.70 a barrel on April 17 to a fresh 21-year low of US$18.30 a barrel on April 24, down by US$3.40 a litre or 15.7 per cent. In Australian dollar terms, the Singapore gasoline price fell by $5.27 or 15.4 per cent to $28.85 a barrel or 18.15 cents a litre.

What is the importance of the economic data? Weekly petrol prices data are compiled by ORIMA Research on behalf of the Australian Institute of Petroleum

(AIP). National average retail prices are calculated as the weighted average of each State/Territory metropolitan and non-metropolitan retail petrol prices, with the weights based on the number of registered petrol vehicles in each of these regions. AIP data for retail petrol prices is based on available market data supplied by MotorMouth.

What are the implications for investors? According to Reuters, global oil demand has collapsed by around 30 per cent since the pandemic escalated in

March with households and businesses consuming less fuel due to COVID-19 restrictions. The situation is unlikely to improve in the near term with demand expected to fall by 29 million barrels per day in April, according to International Energy Agency estimates.

While Saudi Arabia, Kuwait, Algeria and Nigeria have all begun production cuts ahead of the May 1 start date for OPEC+ supply cuts (cuts of 9.7 million barrels per day), oil traders don’t believe the reductions will be enough to balance the oil market. COVID-19 demand destruction is estimated to be 20-30 million barrels a day.

Over the March quarter, petrol prices fell by almost 6 per cent, subtracting an estimated 0.2 percentage points from the Consumer Price Index – due for release on Wednesday.

Investors will also be watching this week for earnings and production results from oil supermajors including Exxon Mobil, BP and Royal Dutch Shell.

Ryan Felsman, Senior Economist, CommSec Twitter: @CommSec