Major initiative to inform consumers how to exploit petrol price cycles launched by ACCC

A major initiative to tell consumers about petrol price cycles in the major metropolitan cities has been launched by the Australian Competition and Consumer Commission on its website.

The 'price cycle' refers to the regular rise and fall patterns of retail petrol prices. As some consumers are aware, the movement in prices from the bottom of the price cycle to the top of the price cycle can be significant.

"Some consumers are already aware that price cycles allow them to buy petrol when prices are relatively low", ACCC Chairman, Professor Allan Fels, said today. "By publicising information about price cycles the ACCC hopes more consumers can exploit the cycle.

"Consumers can make significant savings by buying petrol at the bottom of the cycle. In Melbourne, for example, the average increase from the bottom to the top of price cycles in the year 2002 to date has been 6.7 cents per litre. By buying at the bottom of the price cycle instead of at the top, consumers in Melbourne would have been able to save themselves around $174 a year*".

The table below shows the annual potential savings for consumers in the five major capital cities if they always bought at the bottom rather than the top of the price cycle. On average across these five cities, consumers could save over $150 per year.

*Based on filling a 50-litre tank weekly.

Motoring organisation surveys indicate that a significant proportion of consumers would change their petrol purchasing behaviour to take advantage of the price cycle, if they knew roughly when prices were likely to be lower. For example, if consumers in Melbourne had purchased fuel at the bottom of a recent cycle (on Thursday 7 November) at 85.5 cpl instead of the top of the cycle (on Saturday 9 November) at 92.0 cpl, the savings would have been 6.5 cents per litre or $3.25 for a full tank of fuel.

The table below shows the savings that consumers in each of the five major capital cities could have made during that cycle if they had bought at the bottom rather than the top of the cycle. The table also highlights the fact that price cycles are different across these cities. Price cycles are also not totally regular and the bottom and top of price cycles will not necessarily occur on the same day each week.

"The ACCC is providing the information about price cycles to guide consumers about when to buy petrol", said Professor Fels. "However, it is important to remember that since historical data can only give an indication of what price cycles may do in the future, the information should be used as a guide only".

The ACCC site provides data on price cycles in Sydney, Melbourne, Brisbane, Adelaide and Perth. Information for each city is available on:

• the days of the week when prices were at the bottom and the top of the price cycles in the previous four months. For example, the data shows that for Melbourne, over the period July to October 2002, the bottom of the cycle most frequently occurred on Thursday and the top most frequently occurred on Saturday
• average retail petrol prices over the past 30 days. This chart enables consumers to see the sawtooth pattern of price cycles and use it to assess when prices may increase next
• the length of price cycles (in terms of the number of days from bottom to bottom) in the previous four months. For example, the length of price cycles in Adelaide over the period July to October ranged from six to 12 days

The site will be updated on a daily basis. Data is not provided for Canberra, Hobart or Darwin as petrol prices there do not exhibit regular price cycles. The site is being provided following the Government's response to the ACCC's Reducing fuel price variability report, which was publicly issued on 14 May 2002. One report recommendation was that there should be a consumer awareness initiative to increase consumers' understanding of price cycles and how to exploit them. The Government agreed and asked the ACCC to collect and publish the information on petrol prices it considered helpful for consumers.

The ACCC website also includes information on what determines Australian petrol prices, country petrol prices and answers to some frequently asked questions. The site also has links to a number of other websites that have information about petrol prices and petrol pricing issues.

"There is a lot of information on this topic available", Professor Fels said. "Consumers are encouraged to access it". Professor Fels said that the material about petrol price cycles on the ACCC website can be downloaded, displayed, printed and reproduced for the purpose of increasing awareness in the community about changes in petrol prices.

Background

In early March 2001, the Federal Government asked the ACCC to examine the feasibility of placing limitations on petrol and diesel retail price fluctuations throughout Australia. Reducing fuel price variability was issued on 14 May 2002. Copies are available on the ACCC website.

The report concluded that it is likely that consumers in aggregate benefit overall from price cycles. In general, consumers are better off with variable prices than they are with a fixed (simple average) price. When the price is fixed, consumers have to pay that price and that price alone. However when the price is variable around this fixed price, consumers can buy at the lower price – and they will tend to buy more at the lower price and restrict their purchases when the price is high. The opportunity to do this will make consumers better off.

The data obtained by the ACCC concerning sales volumes over the price cycle supported this analysis. It showed that on average, around 60 per cent of petrol is sold at prices below the average price of the price cycle, and around 40 per cent is sold above.

While consumers taken as a whole may benefit overall from price cycles, there are individual consumers who do not. Some consumers may be price sensitive and it may be possible to help them change their purchasing behaviour by increasing their awareness of price cycles.

In submissions to the ACCC consumer organisations, the oil majors and independents, and State and Territory Governments showed overwhelming support for increasing consumer awareness of price cycles.