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Petrol Prices Explained

Delia Rickard
16th April, 2015

What makes up the cost of petrol? Why are prices volatile? Why did prices generally decrease in late 2014? Where are prices headed? Just some of the many questions drivers ponder when standing at the bowser.

The price you pay at the pump reflects the international price of refined petrol, domestic taxes (excise and the GST), and other costs and margins at the wholesale and retail levels.

While the ACCC has an enforcement role, and a monitoring role which we uase to shine a light on the factors behind prices, we do not set wholesale or retail petrol prices. Prices are determined by supply and demand factors in the market.

The main influence on retail petrol prices in Australia is the international price of refined petrol, which in turn is influenced by the price of crude oil.

As international refined petrol is traded in US dollars, changes in the Australian–US dollar exchange rate also affect domestic petrol prices.

Petrol Report Chart 2015

Click to enlarge

Recent movements

For example, monthly average retail regular unleaded petrol prices in the five largest cities (Sydney, Melbourne, Brisbane, Adelaide and Perth) decreased by 28.1 cents per litre (cpl)—from 151.9 cpl in June 2014 to 123.8 cpl in December 2014.

This fall closely reflected the decrease in international refined petrol prices in Australian cents per litre over the same period (by 28.4 cpl).

The decrease in retail petrol prices would have been larger had the Australian–US dollar exchange rate also not decreased over the same period.

Monthly average retail petrol prices decreased further in January 2015—by 14.6 cpl to 109.2 cpl. This was the lowest monthly average price in nominal terms since January 2009.

At the beginning of February 2015 retail petrol prices in the five largest cities started to increase, following a rebound in international petrol prices.

Regional prices

The ACCC’s recent report found that petrol prices in regional locations did not decrease by as much as in the larger cities in late 2014.

In June 2014 monthly average retail prices of petrol across regional locations in Australia were 5.4 cpl higher than prices in the five largest cities, close to the average for 2013-14; by December 2014 this differential had increased to 17.5 cents per litre.

This differential remained around this level at the end of January 2015. During January the differential increased in some of the 180 regional locations monitored by the ACCC, and decreased in others.

The ACCC will conduct three regional fuel market studies in 2015 to seek to explain both the size of the usual price differentials, as well as the slowness in passing through the international price falls in many regional locations.

Price cycles

If you live in one of the five largest cities, price cycles are another factor which influence the price you pay.

Petrol prices move up and down in regular patterns and sometimes there can be around a 20 cents per litre movement between the top and bottom of the cycle.

Perth has a regular seven-day price cycle, while the four eastern cities have longer and less frequent cycles with an average duration of around three weeks through most of 2014, but significantly longer in late 2014 and early 2015 before price increases in February.

If you are looking for advice on where prices are in the cycle, the ACCC publishes ‘buying tips’ for motorists in the larger cities at http://www.accc.gov.au/consumers/petrol-diesel-lpg/petrol-price-cycles.

Delia Rickard
Deputy Chair
Australian Competition and Consumer Commision

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