The good oil with curbing petrol costs

Published in the Daily Telegraph- September 2014 by Dale Gillham

When oil goes up, petrol goes up and we all feel the pinch in our back pocket.

Some so much that they queue up to beat the price rise, while others attempt to work out which day will give them the low price in the weekly cycle.

Right now the price of oil is falling, meaning the pressure is off our wallets when we fill up the car. But how long will this honeymoon last before we again pay more at the bowser? More importantly, what can we do to beat future price hikes?

We all know that oil costs millions of dollars to extract and process into fuel, therefore it is expensive to buy, which is why you may hear it referred to as liquid gold. The price of oil is also impacted, as is any commodity, by supply and demand. Also, political tensions, wars, the weather, anything that can have an effect on production levels will impact the price.

Further, speculators betting on movements in the oil price can be a factor in creating price spikes. This we saw with dramatic consequence in 2008 when the price of oil rose to around US$147 per barrel, and when it did we paid a lot more for petrol.

Consumers are at the bottom of the supply chain and therefore have no control over the price of petrol. The only way to pay less is to use less, but it's not always practical to choose to walk or ride a bike.

Paying more at the bowser doesn't end there as you pay more every time you shop for your household goods, and some select where they shop just to get the petrol discount voucher. So even if you are good at beating the queues at your local petrol station to get a better price, fuel will cost you right down the line.

So what is the solution?

Part of the answer starts with the oil price itself, which is traded on the open market therefore if you can read a price chart then you can determine in advance when oil is likely to move significantly up or down. This knowledge allows you to profit either directly, by trading in oil, or through companies listed on the Australian sharemarket that profit from oil.

An example is one of the biggest companies in this sector of the share market, Woodside Petroleum. Others include Tap Oil, AWE Limited and Beach Energy. In essence you can make money investing, which can offset many times over what you spend at the bowser. Best of all, if you know how, you can position yourself in the market to profit regardless of whether oil rises or falls in price. So where is oil likely to head next?

Oil has been fluctuating between about US$80 and US$115 per barrel since March 2012. The chart shows how the price is trading closer to the bottom end of this range and, therefore, the probability of a further fall is increasing.

If oil falls below US$90 in the short term there is little to stop it declining to between US$82 and US$85 over the coming six to 12 months.

Oil prices could rise. If oil manages to claw its way back above US$98 you could quickly see a significant hike in fuel prices, which may be an opportune time to buy some of the shares I mentioned.

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