BILL’S BITES: Oil’s wild ride and pump prices

Justin Smirk
05:14pm November 16 2018

 Westpac senior economist Justin Smirk on recent oil and petrol price moves.  


Firstly, more women are entering the workforce, attending university and returning to work after having children than previously. Also, women are working longer and retiring later, so there is a larger pool of women who not only want to work but have the skills to match. This is the natural evolution of policies over prior decades and is a very positive story.

But we may be on the verge of a potential new issue: rising male unemployment.

Over the longer term, the male participation rate has eased to 70.7 per cent from almost 73 per cent a deacde ago as the female rate rose to 60.4 per cent. Over that time, unemployment rates have converged to about 5.4 per cent for both males and females compared to 4 per cent for men in May 2008 and 4.6 per cent for women.

More recently in the year to May, overall female employment lifted 3.2 per cent, or 183,500, versus male employment at 1.8 per cent, or 120,400, the difference due to a surge in part-time work among women.

One of the drivers is that jobs many males tend to be attracted to are not growing as fast as the overall labour force at a time of massive change in the economy which, if this continues, will lead to rising unemployment, including for male youths.

A worry is the outright decline of male employment in the health and education sectors at the same time as strong gains in female employment. In the year to May, male employment contracted 32,500 and 22,900 in education and health, respectively, while female employment rose 36,900 and 62,900. This outright decline is not easy to explain.

It might just be a statistical quirk that reverses, as the data can be quite volatile, but other forces may be at play. What is clear is that rising male youth unemployment, for example, can have significant implications for how economies and societies evolve over time.

This obviously won’t happen overnight.

In the year to May, the manufacturing and construction sectors remained big job creators overall. Combined, they only just trailed white collar jobs – in finance, real estate, technical and professional, other business services and government – which was the biggest contributor to the labour market at 120,000 employees.

But even in the white collar finance sector, which has a roughly same gender split, female employment outpaced males at 3600 versus 2600.

It’s been a volatile month for the oil market amid rising supply and fears of softening demand.

In early October, the price of oil – as referenced by the ICE Brent contract, the most relevant for Australia – peaked around $US83 a barrel, a roughly four-year high.

In turn, predictions grew that oil was headed for more than $US100 a barrel.  

But in the past month or so, the price has sunk back to around $US65 a barrel amid some volatile trading sessions, following rising production from Saudi Arabia and Russia, plus growing US supply as President Trump eases production constraints.

It’s caused a decent amount of uncertainty for other markets, such as stock prices as investors recalibrate their expectations for energy companies and others exposed to the industry.

The good news for Australian consumers is that it’s flowed through to lower petrol prices, which peaked around two weeks ago. Even if oil prices stay around when they are, petrol prices will likely ease further in the weeks ahead. This is deflationary for an economy already experiencing weak inflation, but may help support consumers confronted with softening house prices.

We feel the oil price is likely to settle around $US70, rather than head back towards $US100 or fall materially further, given the Organization of the Petroleum Exporting Countries has indicated it would like to see prices around $US70.

Westpac chief economist Bill Evans was unavailable for this Bill’s Bites.

This material contains general commentary, and market colour. This material does not constitute investment advice. This information has been prepared without taking account of your objectives, financial situation or needs. We recommend that you seek your own independent legal or financial advice before proceeding with any investment decision. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from these forecasts. Except where contrary to law, Westpac and its related entities intend by this notice to exclude liability for this information.


Justin Smirk

Justin has 17 years’ experience in Financial Markets. He joined Westpac in 1999 following his early training at the Reserve Bank of Australia. He has spent time in Westpac’s London office and has had a secondment as Chief Economist at St George Bank. Justin’s areas of interest are the international economy, commodity markets and the resources sector. He also analyses the Australia labour market and prices.

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