Australian shares are expected to open higher on Thursday, buoyed by a sharp drop in oil prices that has eased concerns about energy supply disruptions. Crude oil fell more than 4% overnight, as worries about potential disruptions through the Strait of Hormuz subsided and traders weighed the possibility of increased Iranian exports. The move sets a positive tone for the local market, which ended Wednesday up 0.2% at 8,808.40.
Oil's Plunge and What It Means for Markets
The decline in oil prices comes after a period of heightened tension around key shipping routes. The Strait of Hormuz, a narrow waterway through which about a fifth of the world's oil passes, had been a source of concern for traders. However, those fears have eased, and the market is now focusing on the potential for higher supply from Iran, which could further weigh on prices.
For Australian investors, cheaper oil is often a positive signal. Lower energy costs can feed directly into inflation expectations, as gasoline is one of the fastest-moving prices in consumer data. When inflation expectations cool, it can reduce the pressure on the Reserve Bank of Australia (RBA) to keep interest rates high. That dynamic can be supportive for rate-sensitive sectors of the sharemarket, such as real estate and consumer discretionary stocks, even if it's not great for energy producers.
The overnight move in oil came against a mixed session on Wall Street. The S&P 500 dipped 0.1%, the Nasdaq fell 0.4%, and the Dow rose 0.4%. That pattern suggests a rotation among sectors rather than a broad risk-off shift, which is consistent with the idea that investors are adjusting their portfolios based on changing inflation and interest rate expectations.
Key Data and Company News on the Horizon
Back home, the next major macro input is Thursday's labor force report. This is a closely watched read on demand in the economy and how much wage pressure might be building. A strong jobs report could reinforce expectations that the RBA will need to keep rates higher for longer, while a weaker one could fuel bets on rate cuts. Investors will be parsing the data for clues about the central bank's next move.
On the company front, two notable updates are in focus. Worley, an engineering services firm, has lifted its expected fiscal 2026 impact on underlying earnings to as much as AU$60 million, up from a previous range of AU$30-40 million. The revision is due to persistent project delays in the Middle East, which are pushing work into later periods. While delays are generally a negative, the increased earnings guidance suggests the company is still seeing strong demand for its services.
Mineral Resources, a mining company, announced it will stop operating its Lucky Bay garnet project in Western Australia and place it into care and maintenance from July 1. Care and maintenance means the site will be kept ready for a potential restart, but operations will cease. This decision reflects the company's ongoing review of its portfolio and the challenging conditions in the garnet market.
What It Means for Investors
For everyday investors, the key takeaway is that oil's 4% drop can move RBA expectations faster than it moves the index. A sharp fall in crude tends to cool near-term fuel inflation expectations, which can lead traders to trim their forecasts for how restrictive the RBA needs to be. That can pull down government bond yields and the 'discount rate' used to value future profits, which is typically supportive for rate-sensitive parts of the sharemarket.
However, it's not a one-way bet. Cheaper oil is bad for energy producers, and the broader market's direction will depend on how the labor force report and other data shape the outlook for interest rates. Investors should also keep an eye on global developments, as the easing of supply worries could be temporary if geopolitical tensions flare up again.
In the meantime, the local market appears to be taking its cue from the oil market, with a firmer open expected. Whether that holds through the session will depend on the data and company news that follows.
