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What falling oil prices will mean for you at the petrol pump

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The global oil market is in a mess, but it's not all bad news for consumers.

It all started last week.  In an attempt to maintain oil prices amid sliding demand due to COVID-19, the OPEC cartel agreed to cut production. But the cut was reportedly conditional on Russia doing the same - and it didn't.

Not wanting to lose market share, Saudi Arabia responded to Russia's refusal by slashing its prices from US$14 per barrel to US$8, triggering the collapse of the global oil market.

oil prices petrol

On Monday, the US West Texas Intermediate (WTI) crude benchmark and the global Brent Crude benchmark went into free-fall, down 24.59% and 24.1% respectively.

BetaShares chief economist David Bassanese says the collapse in global oil prices is symptomatic of chronic over supply problems in the industry.

"Holding a cartel together is never easy, but it has been made harder by weakening global demand due to both coronavirus concerns and an ongoing trend to more fuel efficient cars," says Bassanese.

"It seems likely that both OPEC and Russia will be forced back to the negotiating table, but not before significant pain for oil producers all around the globe."

The turmoil comes with a silver lining, and it can be found at the bowser.

"Lower oil prices represent good news for Aussie motorists. The ready-reckoner is that every US$1 a barrel fall in the oil price leads to a one cent fall at the petrol bowser," says Commsec chief economist Craig James.

"Provided the Aussie dollar is reasonably stable, motorists may be able to look forward to filling up for near $1 a litre."

More broadly, "lower oil prices are a windfall to consumers, which could in turn help support consumer spending during the next few turbulent months", says Bassanese.

"To the extent lower oil prices caused headline rate of inflation to drop globally, it will also give central banks even more incentive to add more monetary stimulus in the months ahead, most likely via direct asset purchases."

We're cutting through the confusion to help you manage your money during the coronavirus outbreak. Click here for more on how COVID-19 could affect your job, budget, super and investments.

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David Thornton is a journalist at Money magazine. He previously worked at Your Money, covering market news as producer of Trading Day Live. Before that, he covered business and finance news at The Constant Investor. David holds a Masters of International Relations from the University of Melbourne.
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