Oil price slump to benefit most
FAMILIES, shopowners and businesses will benefit from the dramatic and unexpected slump in oil prices in the second half of 2014 - but a NSW parliamentary researcher has found mining investment and government revenue will both take a hit.
The Government last week released its A plunging oil price: implications and expectations report that set out the winners and losers of the changing global economic landscape.
"The effect of the oil price plunge varies between economies, individual sectors, businesses and households," said researcher Andrew Haylen.
"Generally though, if you're consuming more than you're producing you'll be better off.
"Regardless of who wins or loses, the rapid and sustained fall in the oil price is shaping up to be 2015's biggest economic story."
The slowdown in economic growth within emerging markets like China and improvement in energy efficiency mean demand for oil is not growing as significantly as it was in the early 2000s and in the period after the global financial crisis.
Mr Haylen said the outlook for growth remained relatively subdued and a price war between oil-producing Middle Eastern countries looked set to continue driving down prices in 2015.
NSW households currently spend 3.5% of their average income on petrol.
At an average price of $1.14 per litre, Mr Haylen said there was likely to be a saving of $14 a week compared to mid-last year.
If the 99.9c per litre price becomes the norm, it would amount to an annual saving of $998 for the average household - money that could be spent on shopping - and would help drive down interest rates.
Mr Haylen said the jury was still out on how much petrol savings actually translated into more spending at NSW retailers, but quoted JP Morgan economist Ben Jarman who said the oil price cut was "about as good a free kick as you're going to get for the consumer globally. If you look at a single chart of oil prices versus global real retail sales volumes you can easily see the historical correlation."
Business expenses were also expected to fall with fuel prices, as "transport costs alone constitute between 30% and 35% of a typical business's total supply chain costs".
But not everyone will be a winner.
Energy and natural resource companies, particularly those with liquid natural gas operations in Queensland and Western Australia have already borne the brunt of the oil price collapse, with share prices dropping dramatically.
Mr Haylen said Santos, as the most financially stretched of the larger Australian energy companies, was especially vulnerable.
Deloitte Access Economics estimated Australia's terms of trade would fall by 12% in 2014-15, with a further 4% drop next financial year, spurred on by the latest heavy falls in oil prices.
"This is likely to eat into government revenue, with the Commonwealth Parliamentary Budget Office estimating that a 10% fall in the terms of trade will wipe $7 billion off the budget bottom line in the current financial year, with the total rising to $12.4 billion a year by 2023-24," Mr Haylen said.