MENU

How to prepare your share portfolio for $2 per litre petrol prices

You can blame the rising crude oil price and slumping Australian dollar for predictions that the price consumers will soon pay at the bowser will top $2 per litre.

Some parts of the country have already witnessed the price of regular unleaded hitting $1.90 per litre, according to the Australian Financial Review, and it is probably only a matter of time before the price breaks above $2 per litre.

Petrol prices are known to be volatile and the spike won’t necessarily have much of an impact on your share portfolio, but there’s a catch.

The issue here is that the price at the bowser has been trending upwards in the past few cycles (where the peak is higher than the past cycle) and there’re reasons to think this will continue for a while yet!

This is because crude prices are likely to hold on to their gains and experts believe the Australian dollar will stay on the backfoot as US interest rates rise while ours stay at record lows.

The obvious winners are Caltex Australia Limited (ASX: CTX) and our oil & gas stocks like Woodside Petroleum Limited (ASX: WPL) and Oil Search Limited (ASX: OSH), which are outperforming the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index.

However, a higher for longer fuel price will impact on a much wider range of stocks as the commodity is a material input cost to many businesses such as our national carrier Qantas Airways Limited (ASX: QAN) and rail operator Aurizon Holdings Ltd (ASX: AZJ).

Some will have fuel hedging contracts in place to soften the blow, but these contracts typically expire in a year or so.

The higher fuel cost also acts like a tax on consumers and will impinge on household spending at a time when mortgage rates are rising while wages growth remains anaemic (and we don’t even need to talk about electricity prices).

Thank goodness we have personal tax cuts coming down the line although the petrol price increase will dampen that benefit.

Rising oil is bad news for our retail-exposed stocks like Wesfarmers Ltd (ASX: WES),  Myer Holdings Ltd (ASX: MYR) and JB Hi-Fi Limited (ASX: JBH) but that’s also because they may have to raise prices of their goods if the cost of moving product through the distribution channel is passed on to them.

This hasn’t happened yet, and petrol prices will need to stay higher for longer before that happens. But I’ve little doubt we will feel the impact of higher inflation throughout the economy if the current trends continue.

From that perspective, investors should be paying close attention to the price of fuel as this commodity can soon create a host of winners and losers on the ASX.

Top 3 ASX Blue Chips To Buy In 2018

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool’s Top 3 Blue Chip Stocks for 2018."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.