ACCC issues report on unleaded petrol prices

The Australian Competition and Consumer Commission today issued its second report on the prices, costs and profits of unleaded petrol in Australia.

"2008/09 has been the most volatile year on record in petrol pricing.
In July 2008 we saw a record high of over 160cpl followed by a record decrease between July and December that year of about 62 cpl," ACCC commissioner Joe Dimasi said.

In 2009, petrol prices have been much more stable. After an initial increase of about 20 cpl in January and February 2009, prices have moved in a fairly narrow range.

There are three main factors which drive retail petrol prices in Australia:

• the international price of refined petroleum (Mogas 95)
• the exchange rate of the Australian dollar against the US dollar
• the well-established weekly retail price cycles which operate in the large capital cities and affect the day-to-day prices of petrol.

The report shows that Australian petrol prices have closely followed the price of Singapore Mogas 95, the relevant international benchmark price.

"We’ve seen this close relationship again and again through the peaks and troughs of the last 18 months," Mr Dimasi said. "So far this year, Mogas 95 has increased by about 23 cpl while retail prices have increased by about 21 cpl.

"The other factor to consider is the strength of the Australian dollar.  If the dollar had stayed at levels seen in early March 2009 petrol would be around another 28 cpl more expensive."

The report breaks down the component prices of petrol at the pump and shows that just under 90 per cent of the price motorists pay is taken up by the cost of the refined product and taxes.

"We can also report that the petrol sector made a $480m loss this year, although that is likely to be a one-off.  Profit margins usually sit between 2 and 6cpl, which is the total for refining, wholesaling and retailing.

"The retail price cycles which operate in the larger cities are however a cause of concern.  The system of information exchange between petrol companies mean we risk having to pay more for petrol over time."

The price hike or restoration phase of the cycle is led by the three major refiner-retailers: Caltex, Mobil and BP. In the discounting phase the most active are usually Woolworths, 7-Eleven, and independents including United.

"This coordinated behaviour associated with the jump in fuel prices as part of the weekly price cycle was closely scrutinised during the ACCC's investigation into the proposed acquisition of Mobil's service stations by Caltex Australia Ltd. We formed the view that to increase Caltex's market share would increase the likelihood of stable price increases," Mr Dimasi said.

In addition, the ACCC looked closely in this year's report at whether or not there were price rises before public holidays.  The ACCC has found that prices go up before most weekends due to the operation of the usually weekly cycle. However, price increases just before public holidays have not been unusually high.

"This year Christmas Day falls on a Friday, so I would encourage motorists in the larger cities to buy their petrol on Wednesday or even on Tuesday when prices are still fairly low and not wait till Thursday.  As usual, the ACCC will be monitoring petrol prices over the Christmas – New Year period," Mr Dimasi said.

Background

In 2008-09, the average price of petrol in the five largest capital cities was 127 cpl. Of this around 50 per cent was due to the cost of refined petrol (see chart below). In turn, the cost of refined petrol was dominated by the cost of crude oil, so most revenue passed back to the owners of the crude oil.

This means about 15 cpl of the retail price of petrol went to the local petrol companies to cover a number of costs such as freight (including freight to Australia from overseas), wages, and terminal and service station operations and a profit margin.

The ACCC has found that petrol industry profits over the past seven years have been mixed. In aggregate, the petrol companies made losses in 2008-09 after making profits in previous years. 

The ACCC has estimated that the petrol companies lost around $480 million from the sale of petrol in 2008-09. This was an unusual result due to the rapid fall in the international price of refined petrol during late 2008. Over the seven years to 2008-09, profits on petrol averaged 3.1 cpl. In most years, industry profits have been around 2 to 6 cpl.  

As Mogas 95 is priced in US dollars, changes in the value of the Australian dollar affect local petrol prices. For example, the increase in the value of the Australian dollar since March 2009 has protected Australian motorists from a substantial increase in the international price of petrol.