The Christmas New/Year period in Australia is typically a time of Christmas trees, Christmas stockings and yes, you guessed it, petrol price commentary.
The focus on petrol prices at this time of year – as many families fuel up for a summer road trip – is understandable, as is the fact that this focus rightly results in an increased level of public scrutiny of average petrol prices.
It is unfortunate, however, that much of this commentary is often premised on the selective use of facts to push a position that is manifestly wrong.
This year, the award for the most outlandish statements on petrol prices goes to the Royal Automobile Club in Queensland (RACQ) who used the slow news period to generate a series of media stories about average petrol prices in Brisbane.
An analysis of these stories – and related media statements – suggests that the RACQ had determined that Brisbane motorists were being “gouged” by fuel retailers in the lead-up to Christmas. This assertion was apparently based on the following observations:
- During December 2017, Brisbane petrol prices hit a three year high “making it the most expensive for fuel out of all Australia’s major capital cities” (Courier Mail, 5 January 2017) – the apparent implication being that Brisbane petrol price increases were out of step with other Australian capital cities.
- Petrol prices in Brisbane were substantially higher than the fuel prices in most areas of Regional Queensland, with “no good reason for it” (Courier Mail, 5 January 2017) – with an apparent implication that metropolitan retailers were price gouging Brisbane motorists.
- The solution to lowering average fuel prices is to introduce a compulsory fuel price reporting scheme (Courier Mail, 5 January 2017) along similar lines to the NSW FuelCheck and NT MyFuelNT
The RACQ spokeswoman concluded that most fuel retailers were charging well above the RACQ calculated “fair price” – whatever that is – but we will come back to that later.
Let’s look at the accuracy and completeness of each of these statements and the degree to which they might justify such a vicious attack on Brisbane fuel retailers.
It is true that fuel prices in Brisbane hit a three-year high during December 2017 as cited in the RACQ’s first statement.
In fact, petrol prices in all Australian capital cities hit a three-year high in December 2017 owing to a steady rise in world oil prices – which has seen the average cost of a barrel of oil rise steadily from USD$40bbl to USD $65bbl (i.e. 60% increase) since 23 June 2017.
Brisbane was therefore not alone in experiencing the price flow-on effects of higher oil prices.
Rather, the Brisbane price increase was part of a worldwide phenomenon that cannot meaningfully (or even reasonably) be attributed to the actions of fuel retailers in Brisbane.
Turning our attention to statement 2, it was again true that Brisbane fuel prices were higher than many regional areas during December 2017.
But the implication that this was somehow a price aberration perpetrated by Brisbane’s fuel retailers is a nonsense.
The explanation for this differential can be squarely attributed – as it can during every month of the year – to the interplay between the metropolitan petrol price cycle and relatively constant regional fuel prices.
Average fuel prices in most of Australia’s capital cities – including Brisbane – move up and down as part of the normal price discounting cycle (See Figure 1).
Figure 1: Highs and lows and lows of the Brisbane petrol price cycle in December 2017
Prices in regional areas, on the other hand, remain relatively constant.
As a result, the average price of fuel in the Brisbane metropolitan area will be higher than regional areas in Queensland at the top of the cycle – and lower than regional areas at the bottom of the cycle.
The suggestion that this longstanding trend is somehow evidence of fuel retailers “gouging” Brisbane motorists is therefore patently incorrect – it is a capital city fuel pricing phenomenon that has existed for more than 30 years in Australia.
Unlike the first two statements, every aspect of the third statement is very dubious.
While some stakeholders assert that the introduction of FuelCheck in NSW has lowered average fuel prices, there is no definitive evidence to support this claim.
Most objective observers have concluded that FuelCheck has had no material effect – either up or down – on average petrol prices in NSW
The RACQ statement is even more dubious given the experience of the Northern Territory where, soon after MyFuelNT was introduced, fuel prices rose on the back of the normal petrol price cycle – leading some Territory politicians to publicly conclude that MyFuelNT had no effect on petrol prices in Darwin and had merely amounted to a massive waste of scarce taxpayer funds on a political stunt.
In short, there is no evidence that government managed fuel price reporting schemes lower fuel prices.
In fact, a recent OECD examination of compulsory price reporting schemes around the world (see https://one.oecd.org/document/DAF/COMP/WD(2017)25/en/pdf) concluded that such interventions by governments can increase fuel prices.
Fuel retailers don’t have a problem with fuel price apps as they help price-sensitive consumers find the best price in their local area, but any suggestion that these initiatives will somehow reduce average petrol prices is fanciful.
It is the nature of the competition dynamic – not fuel price transparency – that is the single biggest determinant of average petrol prices in any geographic area.
Structural weakness in the intensity of the competition dynamic within Brisbane – not fuel retailer gouging – was recently cited by the ACCC as the principal reason for higher average fuel prices in Brisbane than in most other Australian Capital Cities.
It therefore follows that, if motoring organisations were genuinely interested in raising consumer awareness about petrol price movements then they would educate their members on the ‘ebb and flow’ of petrol price discount cycles.
These price cycles are freely and readily available on the ACCC website (see https://www.accc.gov.au/consumers/petrol-diesel-lpg/petrol-price-cycles). They show how the petrol price cycle is developing and also provide an indication of the likelihood of petrol price changes in coming days.
The ready availability of the ACCC information – coupled with nationwide price apps (like MotorMouth and GasBuddy) – means that Australian motorists already have access to all the tools they need to buy fuel below the “average fuel price” in any given area, should they wish to do so.
On a final note, ACAPMA was intrigued about the RACQ’s notion of a “fair price” for fuel. Presumably, this assertion was based on the belief that all fuel businesses incur the same costs to sell fuel (i.e. rent, wages, electricity, communications and marketing costs) and therefore they can extrapolate an industry-wide average.
But the reality is that less than 1/3 of all service stations are operated by large companies with similar cost bases. The remaining 2/3 of all petrol stations are operated by an estimated 400 Queensland fuel retail businesses of varying size– all operating with different cost structures and making independent decisions about petrol prices.
In evidence provided to a recent Victorian parliamentary inquiry to petrol prices, ACAPMA testified that the costs (excluding any profit) – of operating a service station can vary between 10cpl and 23cpl depending on the nature of the business model and the market in which it operates. (https://www.parliament.vic.gov.au/images/stories/committees/eejsc/Fuel_Prices_in_Regional_VIC/Submission_32_-_ACAPMA_22092017.pdf).
So even if we accept that RACQ’s public assertion that the average difference between the wholesale price and retail price was 16cpl during December 2017, holding this price would mean that some businesses would be making 6cpl gross profit (or $2.40 per average 40 litre fill) while others would be losing 7cpl (or $2.80 per average 40 litre fuel).
Inevitably, the service stations with the highest costs are low volume sites servicing outer metropolitan and regional areas who – if forced to comply with the RACQ’s ‘fair fuel’ price – would ultimately have to shut-up shop, forcing local motorists to travel further to get fuel.
Maybe the interest of RACQ’s members – both metropolitan and regional – might be better served if the RACQ spent more time examining the real facts about fuel prices and less time chasing opportunistic media headlines.
For its part, ACAPMA congratulates the more than 36,000 Australians (employed by the more than 2,500 fuel retail businesses) who gave up valuable family time to work on the Nation’s 6,700 service station sites to ensure that all Australian motorists enjoyed uninterrupted access to fuel over the 2017 Christmas/New Year break.