Cheap petrol – is it all good news?

This morning I filled up the car for less than $1 per litre. I have not filled up the car so cheaply for many years. This is great for consumers, but is it all good news?

It was just months ago that it cost me nearly $75 to fill up the 50 litre tank in my car. This morning it cost me less than $50. Currently I only need to fill up every couple of weeks as I have been trying to get to work on my bike a bit more. Now I have passed 40 years it is time to pay more attention to regular exercise!

Many commuters fill up their car once or twice a week. That means there could be an extra $25 to $50 per week in disposable income available. That’s great news. Just be sure to make the most of the savings.

If you have recently taken out a 30 year $300,000 mortgage, putting an extra $50 per week toward your mortgage could save you about $8,500 in interest over the course of the loan and reduce the loan term by 2 years. That’s a great outcome in anyone’s book.

Alternatively if you don’t have any debt, you may be in a position to salary sacrifice the $50/week fuel saving into your super fund. Depending on your marginal tax rate, this could save you $156 to $884 p.a.

Low petrol prices are great for consumers, but they are not great for oil producing countries like Russia and Saudi Arabia. With oil prices so low they have to sell a lot more oil to make the same amount of money, which perpetuates the problem as it pushes more oil into the market, keeping the price low. The International Monetary Fund estimates that the revenues of Saudi Arabia and its Persian Gulf allies will slip by $300 billion this year.

Whilst you pocket part of this $300 billion at the petrol pump in the form of cheap fuel prices, it can have flow on effects that may impact you. Low oil prices keep the price of other goods and services lower as oil is an input cost to many parts of the economy. Low prices means low inflation and low inflation means low wages. If you hold a lot of debt you are not going to inflate your way out of debt.

This brings me back the key point. Make sure you take advantage of the fuel savings, particularly if you hold significant debt, as in the current environment your wage is not going to increase significantly to enable you to pay off debt more quickly.

Similarly if you are a retiree living off your savings, then low oil prices will likely keep returns on your investments low, cancelling out some of the benefits of cheap fuel.

Whilst it is a great feeling filling up so cheaply at the fuel pump at sub $1 per litre, remember the broader implications and take the appropriate action for your circumstances.

General Disclaimer
The content of this article includes advice that is general in nature and does not consider your personal situation. Christian Super encourages all people considering their options in retirement planning to seek out qualified professionals who can provide specific personal advice.