Aussie Petrol Prices Rising, Could Be Much Worse

Petrol prices are a major concern for most Australians when they set their budget. If you feel like you’re suffering at the bowser, here’s the hard data: the capital city price for unleaded petrol rose by eight cents per litre over 2010-2011, with an average cost of $1.32 per litre. But which petrol retailers are usually the first to lift prices?

Picture by Michael Spencer

The Australian Competition and Consumer Commission (ACCC) today released its annual report into petrol pricing in Australia. The price paid correlates closely with the raw price paid by refineries and movements by Australian currency. In other words (and I know some of you won’t want to hear this), you’re not being unreasonably gouged by your local service station, which makes an average profit per litre of around 2.2 cents. You’d certainly pay more in other parts of the world:

Petrol prices in Australia continue to be among the lowest in countries in the OECD, largely due to tax rates on petrol being lower in Australia than most OECD countries.

Here’s how the pricing for petrol typically breaks down (the ‘Mogas 95’ component is the raw oil cost):

Despite our lower-than-much-of-the-world tax rates, prices have clearly risen. In the ACCC’s view, that’s down to factors outside the control of individual suppliers to a large extent:

Higher retail petrol prices this year reflected geopolitical tension in the Middle East and continuing strong economic activity in Asia, which led to stronger demand and higher crude oil prices during 2011.

The ACCC’s analysis suggests that the average household spends four per cent of its total expenditure on petrol. Many people stick to routines such as always buying on a particular day, to take advantage of well-recognised price cycles where the price will vary quite dramatically over a given period, something the average figure doesn’t directly highlight. This is an artificial phenomenon in that it doesn’t reflect variations in the raw cost of oil but is a deliberate marketing strategy:

Petrol price cycles are not responses to changes in cost but are the result of the deliberate pricing policies of the major fuel retailers. The price increases are generally led by BP or Caltex.

The phenomenon is not unique to Australia but is more pronounced here than elsewhere. Buying at the low end of the cycle makes sense, but analysis suggests the relevant day often shifts over time. So cheap Tuesday may have worked a year ago, but unless you check the price every single day and adjust your behaviour, you’re not always going to see the benefit.

The average cost is also higher in regional areas, something the ACCC acknowledges causes a lot of complaints. However, it seems unlikely that regulators will directly step in to further control fuel supply. As such, higher petrol prices are likely to remain a factor in your budget if you live outside a capital city.

In its announcement, the ACCC was also at pains to single out inaccurate oil price reporting in the mass media as creating unrealistic expectations:

Another issue of concern to the ACCC is the continuing quotation of the West Texas Intermediate (WTI) oil price. Consumers may see a change in the price of ‘oil’ quoted in the media and expect it to be reflected in the retail price. However, the quoted price is often WTI which is not relevant to Australia and references to it can provide an inaccurate picture to the public. The ACCC considers that the more heavily traded Brent or Tapis benchmarks better reflect the price that Australian refiners pay for crude oil.

Complaining about petrol prices is practically an Aussie tradition, and the finite nature of oil supplies means we’re never likely to see a reduction in either price or whining. What tactics have you used to cut your petrol bill? Tell us in the comments.


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