ACCC report on unleaded petrol prices

22 December 2008

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

In December 2007 the Assistant Treasurer and Minister for Competition Policy and Consumer Affairs, the Hon. Chris Bowen MP, directed the ACCC to formally monitor petrol prices and report annually for three years. This is in addition to the Petrol Inquiry report which was released in December 2007.

"Petrol prices are of great concern to the Australian public. This has particularly been the case in the past year as price of petrol increased substantially reaching a high of about 163 cents per litre in five major metropolitan cities in July before falling back to an average of 105 cpl in mid December.

"The report has enabled the ACCC to explore further the factors that have influenced petrol prices this year and the industry's profits, costs and revenue," ACCC Commissioner, Mr Joe Dimasi, said.

The report has confirmed a number of the key conclusions from the ACCC's 2007 Petrol Inquiry.

In particular, the report shows that Australian petrol prices have closely followed the price of Singapore Mogas 95, the international indicator benchmark price.  The major contributor to the increase in Australian petrol prices was the higher Singapore benchmark price.  "Movements in Australian petrol prices are overwhelmingly determined by international petrol prices. Between mid July and mid December retail prices had fallen by at least as much as Mogas prices had fallen," Mr Dimasi said (see Chart 1).

Chart 1: Seven-day rolling average retail unleaded petrol prices across the five largest metropolitan cities compared to Singapore benchmark (Australian cents per litre) 2007–08

Note: The difference between domestic retail petrol prices and the Singapore benchmark is primarily because of excise, GST, freight costs, fuel quality premium and other adjustments and charges, and wholesale and retail margins.

Source: ACCC, Informed Sources and Platts.

In December 2007 and October 2008 the price of petrol deviated from the international benchmark price for a short period of time.  The ACCC examined these two instances and found that the deviations were a result of supply issues in New South Wales, Victoria and Queensland, an increase in international freight costs, and volatility in price of Singapore Mogas 95 and the Australian/US dollar exchange rate.

The ACCC also examined the difference between city and country petrol prices in Australia.  In 2007–08 average prices in the three smaller capital cities and country towns were about 6 to 7 cents per litre higher than in the five largest metropolitan cities.  This differential has remained steady for some time (see Chart 2). "Higher prices in the smaller centres are due to a combination of factors including higher transport costs, lower volumes and less competition."

Chart 2: Average monthly unleaded petrol prices in the five largest metropolitan cities, the three smaller capital cities and country towns: July 2002 to November 2008

Source: ACCC and Informed Sources

Consistent with the findings of the Petrol Inquiry, the report shows that the petrol industry is concentrated at the refining and wholesale levels.  The arrangements of the oil companies and low potential for large-scale independent importing act as significant barriers for new entrants in the wholesale market.

As a result, competition at the wholesale level of the industry is a key concern of the ACCC. The ACCC is discussing wholesale issues with a number of the industry participants. "Developments in this sector are being monitored closely," Mr Dimasi said. "The ACCC wants to see competition in the wholesale sector encouraged and not diminished."

Despite the concentrated refining and wholesale sectors there is still active price competition at the retail level and by international standards Australian petrol prices are relatively low.

The ACCC has found that there had been substantial increases in costs for firms operating in the petroleum industry in 2007-08. These increases primarily reflect increases in crude cost for refineries and the cost of petrol purchases for wholesalers and retailers.  Overall profitability of the industry was not higher in the 2007-08 year even though the retail price of petrol increased considerably.  Further, the level of profitability of the petrol industry does not appear to be particularly high in comparison with other industries. 


Release number: 
MR 368/08
ACCC Infocentre: 

Use this form to make a general enquiry.