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As the new financial year begins, West Australian household budgets are getting a helping hand from low petrol prices.
Over the past week, the national average price of unleaded petrol fell by 3.5 cents to 120.0 cents per litre, according to the Australian Institute of Petroleum.
In Perth, prices fell by 2.4 cents to 119.8 cents per litre, but in some areas they have fallen below $1 a litre.
Why are petrol prices so low?
Because global oil prices are low. The Organisation of the Petroleum Exporting Countries (OPEC) has been trying to keep a lid on production to boost prices, but its efforts have been stymied by US shale oil producers, who have boosted output — aided by better technology and lower costs.
"The world is well supplied with oil at this present time and that's essentially putting some downward pressure on global oil prices," CommSec senior economist Savanth Sebastian said.
"For motorists, they've got the double whammy effect of a stronger Australian dollar as well and that's helping to depress prices at the pump."
How low can they go?
Under $1 is about as good as it will get. Much depends on the Australian dollar, which is relatively strong against its US counterpart right now. If that continues — and global demand remains constant — prices will stay low.
"If we see prices occasionally falling below $1 a litre and then just above it, I think that would be the norm over the next six months," Mr Sebastian said.
"Keep in mind that it's not going to last forever."
So how long will low prices last?
Probably for at least six months, provided other factors (production, global demand and currency exchange rates) remain constant.
"At present, it certainly looks like lower prices over the medium term," Mr Sebastian said.
What will cause prices to rise again?
Lack of investment by oil producers. If oil companies stopped investing in exploration and development of assets (or cut back substantially), that would put upward pressure on prices at the pump.
"I think if there's any risks to petrol prices it's really over the longer term with underinvestment in the oil sector, and that could potentially lead to higher prices down the track," Mr Sebastian said.
Are there any other benefits (aside from larger household budgets)?
Consumer confidence should increase and retailers stand to benefit. Based on previous petrol cycles, lower prices tend to support higher consumer confidence.
"Petrol is the single biggest purchase made by households on a weekly basis, so when you do get falls in petrol prices it feeds through to substantial savings on the household budget," Mr Sebastian said.
"The hope is that it actually feeds through to retail activity.
"At the end of the day, if household finances are looking healthier, consumer confidence lifts and it should support what has been essentially a lacklustre retail market for the last couple of months."
Topics: business-economics-and-finance, retail, perth-6000