Daryl Passmore, 01 January 2016

PETROL industry bosses have admitted that what drivers pay at the bowser has little to do with world oil prices.

While denying that the price cycle in southeast Queensland is a myth, they confirm it is simply the result of one retailer deciding to hike costs – and others following.

Motorists’ advocate Geoff Trotter from FUELtrac yesterday slammed the price cycle which operates in southeast Queensland as “an absolute contrivance’’ aimed to deliver maximum profits.

Australasian Convenience and Petroleum Marketers Association chief executive Mark McKenzie said it was “nonsense’’ to suggest the price cycle was a myth. But he admitted: “Petrol price cycles have little to do with wholesale prices (or world prices).’’

The Australian Competition and Consumer Commission, too, has confirmed there is no correlation to the international price of oil, which has fallen sharply over recent months while service station prices continue to bounce up and down.

“Price cycles are the result of deliberate pricing policies of petrol retailers, and are not directly related to changes in wholesale costs,’’ the watchdog said.

Mr McKenzie said the price cycles – which now typically last about a month in southeast Queensland – were “a real manifestation of retail price competition”.

“Essentially, an individual price cycle occurs when a service station – usually a price setter such as a supermarket site – decides to increase their price. Given that they may have market share, everyone follows them up.

“Once all sites have lifted their prices, individual sites lower their prices gradually over their competitors to ‘steal share’. Their competitors follow and so we end up with a game of petrol price ‘leap frog’ that sees the prices come down over time – until a volume site decides the gross margins are too skinny and increase their price which is then followed by everyone else. And so ends a price cycle.’’

Mr McKenzie said while service stations made “healthy’’ profits at the top of the cycle, they often lost money at the bottom.

Mr Trotter from price monitoring agency FUELtrac said the retailers’ explanation confirmed his argument that price hikes were not based on underlying economic factors such as wholesale oil costs, but simply a decision to make more money from motorists.

Extracted in full from the Courier Mail.