- Petrol prices have surged in some Australia cities, with Sydney and Melbourne drivers paying as much as 173.9 cents per litre.
- Those prices appear to be concentrated in certain areas, with other petrol stations in those same cities charging an 45 cents less.
- AMP Capital chief economist Shane Oliver has suggested there’s no real economic reason for the spike. Meanwhile the NRMA told Business Insider Australia we are the only country in the world home to market cycles, which are reaching their height right now.
If you’ve filled up at the bowser recently, you may have had to do a double-take.
Across Sydney and Melbourne, prices at and above $1.70 a litre are appearing more regularly, with little justification, according to AMP Capital chief economist Shane Oliver.
“I get there is a cycle but a 30 [cents] rise over a few days is a bit rich,” he tweeted. “World oil prices and [the Australian dollar] are around [where] they were before the Saudi attack and have been for [weeks] so refiners or retailers [are] making a bit of extra profit here.”
These kinds of prices could soon be unleashed on Brisbane as well, according to Queensland motoring body RACQ.
“We are in the price hike phase of the cycle, so we can’t stress enough, you need to fill up the tank before the cheap fuel disappears,” RACQ spokesperson Lauren Ritchie said in a release.
“We’re expecting the daily average price will peak in the high one dollar sixties, and we shouldn’t break the all-time record of 169 [cents per litre].”
September attacks on Saudi Arabia’s oil refineries temporarily wiped out 5% of the world’s production and saw prices jump from $US60 to $US68 a barrel. While the country managed to restore production fairly quickly, the attack highlights the vulnerability of the world’s oil supply, particularly given recent geopolitical aggression in the Strait of Hormuz.
More pressing for Australians is the fact it added 30 cents per litre to the price at the local petrol station in Sydney and Melbourne.
#petrol prices stay high in Australia despite global #oil prices falling to pre Saudi #drone attack levels. @abcnews reported petrol prices in Melbourne have increased from around 135 cents per litre to nearly 165 cents per litre. #news #charts #Data https://t.co/NjU6toECGs pic.twitter.com/A0ZTfC7fep
— Data In The News (@DataInTheNews) September 30, 2019
Oliver was also quick to point out the rise following the attacks was well out of kilter with reality, given the petrol price jumped far higher than the oil price.
The $2 a barrel rise in world oil prices since the attacks on Saudi Arabia would justify a rise in Sydney petrol prices of ~3 cents/litre, ie to ~157cents/litre. Not 173.9!
Nice profit spike for someone under cover of the attacks even tho the oil price rise was trivial?#ausbiz pic.twitter.com/yFZKEbQSYj
— Shane Oliver (@ShaneOliverAMP) September 27, 2019
Petrol prices are determined by a handful of different factors
The price you pay at the bowser is determined by a number of different costs, according to the NRMA. This includes the price of oil, the refining process, transportation, the Australian government’s fuel excise and GST, plus distribution and retail costs of petrol stations. Given the other costs are largely fixed, it’s really the price of crude oil, plus the relative strength of the Australian dollar that are the major two factors determining prices.
However, as Oliver points out in a separate tweet, the price of petrol has historically been closely linked to the Tapis oil price — the Malaysian crude oil used as a benchmark in parts of Asia — with the exception of the most recent price surges.
Actually they follow the big swings in the Tapis Asian oil price in Australian dollars pretty closely….173.9 is way out of whack though pic.twitter.com/cN2XDHZOVK
— Shane Oliver (@ShaneOliverAMP) September 28, 2019
Economics aside though, petrol prices are unregulated in Australia meaning petrol stations are ultimately able to set prices as high or low as they choose. This leads to serious discrepancies across cities, with prices in Sydney on Monday for example ranging from 173.9 cents to 128 cents per litre.
The average, however, while less alarming, remains high, according to the NRMA.
“In Sydney, the average today for regular unleaded is 142.6, Perth’s the cheapest with 139.6 and Melbourne is hitting the top of its cycle with 151.6,” NRMA spokesperson Peter Khoury told Business Insider Australia on Monday, noting other Australia cities fall somewhere in between.
Australia is the only country in the world where price cycle exist, according to the NRMA
That price cycle, which plays out in each city differently, has a distinct impact on prices. Those vary from two weeks to 50 days, and with the exception of Perth are completely inconsistent, according to Khoury.
“Perth has a seven-day cycle where Monday is the cheapest and Tuesday is the most expensive. The other cities are totally inconsistent, and the regions don’t have them,” he said.
Interestingly, no one actually really knows for sure why we have those cycles at all, despite the fact they seem to dictate sometimes ridiculous prices.
“If you ask the oil companies they tell you it’s a marketing ploy, that they put the price down to compete and raise them to make profit which is about as close to an explanation as anyone’s ever been given. There’s actually nowhere in the world outside of our capital that has those kinds of price cycles. It doesn’t exist anywhere else,” Khoury said.
“There’s a lot of fluctuation in the world oil prices to be fair, but nowhere else that sees those kinds of cyclical jumps we have.
“You’ve got two different strategies in the petrol industry. You’ve got the independents who compete on cost and they’ll often be the cheapest, and you have the major brands, like Coles express which was named by the ACCC as the most expensive, which trade on brand instead.”
While some, upon seeing prices exceed 170 cents per litre, call for the ACCC to intervene and regulate the market, Khoury disagrees saying customers just need to shop around instead, ensuring they spend their money with retailers that keep their prices low. There are a number of tools and resources available to help you, including the NRMA’s own app and website.
In the meantime, take solace in the fact petrol prices aren’t anywhere near all-time highs.
“The highest average we’ve had is 173 cents per litre. We’re about 30 cents short of that at the moment,” Khoury said.
Given the opacity of the market, it’s impossible to really say whether we’ll be seeing numbers like that by the roadside anytime soon.
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