What determines fuel prices in Australia?

Like other products or services, it is ultimately the level of competition in the market that determines the price paid for fuel. In practice, when competition is operating effectively, what we see is that the price for fuel is close to the costs that a supplier incurs to supply the fuel plus a small profit margin.

Main factors

The price of fuel in Australia is mainly influenced by 3 broad components:

• international benchmark prices
• taxes
• other costs and margins

International benchmark prices

For petrol, diesel and automotive LPG the largest component of the price you pay is represented by the international benchmark price (for example, in 2007-08 over 50 per cent of the price of petrol was made up of the international benchmark). The benchmark is such a large component because in Australia taxes and other costs related to supplying petrol are all smaller in comparison. This means that when the relevant benchmark changes the price we pay for fuel reflects that change.

The international benchmark price is different for each fuel and represents an international price which fuel suppliers use as a base price to supply fuel into Australia. The benchmarks for each fuel in Australia are:

• petrol - Singapore Mogas 95 Unleaded
• diesel - Singapore Gas Oil 10 parts per million (ppm)
• LPG - Saudi Contract Prices (Saudi CP)

As international benchmark prices for petrol, diesel and LPG are priced in US dollars ($US), changes in the value of the Australian dollar ($A) against the $US affects the domestic price of fuel. For more information, see How does the value of the Australian dollar affect fuel prices?

Taxes

Margins and other costs

The remainder of the price you pay for fuel is divided between wholesale and retail margins and other costs, such as freight, wharfage and insurance. For petrol and diesel there is also a quality premium added to reflect Australia’s higher fuel quality standards. Transportation and storage of LPG is also more expensive than for petrol and diesel because LPG must be kept as a liquid which requires refrigeration and pressure levels to be maintained.

Like any other business, wholesalers and retailers carry other costs associated with the sale of petrol like wages and salaries, rent, utilities and insurance, and these are also factored into fuel prices.  On top of this, wholesalers and retailers need to make a profit in order to make their businesses viable. This margin is ultimately determined by the level of competition in the marketplace. 

Other factors