Fuel prices recently hit their highest level in four years in Sydney. The NSW government’s Fuel Check website reported prices up to 165.9 cents a litre across Sydney on Wednesday, with the majority of service stations charging upwards of 155 cents. The cheapest we could find was an independent station deep in Sydney’s west, charging 139.9 cents a litre.
In Melbourne, it’s very much the same, with prices peaking at 171.9 a litre, while Brisbane is at around 157 a litre.
Not long ago, motorists were enjoying the relative bargain basement prices of around 130 cents a litre. So why do petrol prices fluctuate so wildly in such a short period of time, and even between outlets in the same city? And why is petrol so expensive right now?
“There are a number of factors, like the exchange rate and oil prices. At the moment, oil prices are high. When the [Australian] exchange rate depreciates, it will increase the prices of imported petrol,” said Abbas Valadkhani, a professor of economics at Swinburne University.
“As the exchange rate depreciates or oil prices goes up, petrol prices in Australia shoot up like rockets. But when the opposite happens, and exchange rates or oil prices go down, petrol prices go down like a feather. It’s rocket and feather stuff.”
Valadkhani told ten daily that a complex relationship between macro factors, like oil prices or exchange rates, and micro factors like retailer competition and other local issues, interplay to set the price you pay at the bowser.
“The major oil companies are trying to [set their prices] in such a way that their behaviour is less detectable. Unfortunately, right now we have high oil prices and they have no hesitation to increase prices. There’s almost no lag to shoot up prices when oil prices go up,” he said.
Crude oil now sits at around US$72.30 a barrel, the highest price since July, and second-highest since 2014. This means that refined petrol will, too, be expensive. Oil prices can fluctuate for a variety of reasons, from disruptions to shipping routes or extraction due to natural disasters, or political unrest in oil-producing countries in the Middle East.
George Rivers, the Associate Dean of Industry Research at Monash University, said the OPEC organisation — the 14-member Organisation of the Petroleum Exporting Countries, which includes , Iran, Iraq, Saudi Arabia and the United Arab Emirates — largely set the world crude oil price as it controlled much of the world’s oil supply.
“The price of crude was around $30, then $45, now it’s above $70. They’ve really raised the price. Then there’s the major oil companies themselves. This market is not very competitive,” he told ten daily.
On a more local level, Rivers said Wednesday morning was often the cheapest time to fill up in Melbourne, while Wednesday afternoon was the most expensive.
The Australian Competition and Consumer Commission (ACCC) advises citizens of “price cycles” in the petrol industry, where some days are cheap and some days more expensive.
“Price cycles are the result of deliberate pricing policies of petrol retailers, and are not directly related to changes in wholesale costs,” the ACCC said on its website.
Graphs on the ACCC website show how different cities have different cycles. Perth prices are shown pinballing up and down by up to 20 cents per week, while Brisbane prices change far more gradually.
Rivers claimed petrol companies engaged in ‘price co-operation’. It was a behaviour he stressed was different to collusion, but that it often led to many large retailers having identical prices across an entire city.
“It’s this price leadership model, where one company will follow what another company is doing. It’s an unspoken cooperation, there’s no collusion here, but they co-operate, which is what happens in an oligopoly structure,” Rivers said.
“We now have price listing websites and services, which one could argue actually helps them to cooperate. These services were supposed to be better for customers, but the experience has been that once you do that and retailers can see what the prices are, they can push prices higher.”
“They follow each other up and down, it goes in both directions.”
Valadkhani, however, said ‘fuel watch’ sites in Perth and South Australia had helped to bring about lower prices in some parts of those states.
“It forces the retailers to post their prices and the prices are locked in for 24 hours. Everybody knows the prices are locked in, so you can shop around. If your prices are not competitive, the retailer misses out,” he said.
“In South Australia, you also have a massive number of independents. Compare some of those to the big companies and you sometimes see a massive price difference.”
Valadkhani said this was because independent operators often were happy to sell petrol at a lower price if it meant they would sell more fuel in total.
“The fact is, you can profit based on price or quantity. You can sell more at lower prices, or less at higher prices. They learned years ago they can drop the price by five cents and sell a lot more. If the price goes down a little bit but quantity sold goes up a lot, they can be successful,” he said.
Extracted from ten Daily