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Motorists are set to benefit from a significant reduction in petrol prices as Brent Crude oil has dropped sharply, reaching its lowest point this year. The price of Brent Crude has fallen more than 7% since Monday, approaching $US72 per barrel. This decline comes amid growing concerns about slowing global economic growth in key markets like China and the US, which are impacting the demand outlook for oil. Meanwhile, ASX energy stocks are also reflecting these shifts in oil market conditions.
The downward trend in oil prices accelerated following recent geopolitical developments. On Tuesday, signs emerged that rival political factions in Libya were nearing an agreement that could lead to the reintroduction of more than 500,000 barrels of oil per day to the global market. This potential increase in supply, combined with discussions within the OPEC+ cartel about possibly easing its control over oil production, has contributed to the recent price plunge.
The impact of the falling oil prices was evident on Wednesday as the ASX energy sector experienced a sharp decline. Woodside Energy Ltd (ASX:WPL) saw its shares drop by 2.5%, while Santos Ltd (ASX:STO) reached a six-month low. The broader energy sector, already struggling throughout the year, was further affected by these developments.
Despite the immediate negative impact on the stock market, the drop in oil prices is expected to bring relief to consumers. Mark McKenzie, CEO of the Australasian Convenience and Petroleum Marketers Association, highlighted that the decrease in oil prices, coupled with a strengthening Australian dollar and improved refining margins, is likely to result in lower wholesale petrol prices. Last week, the wholesale petrol price in Australia hit a six-month low, and the ongoing decline in oil prices is expected to continue easing cost-of-living pressures for Australians.
McKenzie pointed out that oil prices are reverting to more typical long-term trends after a period of significant volatility influenced by geopolitical events. Stability in regions like Ukraine and the Middle East has also contributed to the cooling of prices. According to McKenzie, unless unforeseen geopolitical events occur, wholesale petrol prices should continue to trend downwards.
In alignment with these expectations, RBC Capital Markets' commodity strategist Brian Leisen has revised his oil price forecasts. Leisen anticipates that Brent Crude prices will stabilize around $US75.75 per barrel in the final quarter of 2024 and may further decline to an average of $US72.50 in 2025. He attributes this forecast to anticipated oversupply, a weakening macroeconomic backdrop, and subdued demand in Asia. Leisen’s analysis suggests that these factors will cap oil prices in the near term and contribute to a bearish outlook for crude prices in the coming years.
The significant drop in oil prices represents a welcome development for motorists, potentially signaling a return to lower petrol prices and reduced financial pressures at the pump.
