Australian motorists must benefit from any sustained crude oil price fall

16 March 2020

The ACCC will closely monitor retail petrol price movements in Australia in the coming weeks to determine if the recent falls in international crude oil and refined petrol prices are flowing through to consumers.

This follows a decline in the price of crude oil and refined petrol since early January 2020 and, in particular, sharp falls in crude oil prices last week.

Changes in international refined petrol prices usually take between one and two weeks to be reflected in retail petrol prices in the larger capital cities, and longer in the smaller capital cities and in regional areas. There are also regular price cycles in the larger cities, which means that the underlying decrease in prices due to decreasing international prices may not be apparent in the short term.

Weekly average crude oil prices decreased by around US 14 dollars per barrel (or around 20 per cent) in the first two months of 2020 to around US 55 dollars per barrel. International refined petrol prices fell by a similar amount.

In February 2020 monthly average retail petrol prices in the five largest cities, namely Adelaide, Brisbane, Melbourne, Perth and Sydney, were 141.1 cents per litre (cpl), which was around 8.2 cpl lower than in December 2019.

On 9 March 2020 daily Brent crude oil prices fell by around a further 22 per cent, which will also influence prices at the petrol pump, if sustained.

“Australian petrol prices are primarily determined by international crude oil and refined petrol prices. Therefore, a sustained decrease in these prices should lead, everything else being equal, to lower petrol prices at the bowser,” Mr Sims said.

“We will be looking at the market very closely, to determine if further sustained reductions in international prices are being passed onto consumers, and we will be publicly identifying those retailers that are not passing on reductions.”

“The ACCC cannot control the petrol prices companies set but we can call out problematic price setting which can influence company behaviour,” Mr Sims said.

“At this time the Australian economy needs all the assistance it can get, and lower world oil prices are one of the few positives from current world events.”

“Hopefully, the recent break between Russia and OPEC marks the start of the waning influence of this dreadful cartel on international crude oil prices,” Mr Sims said.

Retail prices increased in the December quarter 2019

The ACCC’s latest quarterly petrol monitoring report  found that the average retail petrol price in the December quarter 2019 in the five largest cities was 149.1 cpl, up by 7.0 cpl on the September quarter.

Increases in international refined petrol prices were a key factor driving up average retail petrol prices in Australia’s largest capital cities. In December 2019, oil producers further cut production, contributing to the international price rises. Other factors included US-China trade talks and increased demands for oil imports by China.

“The international price of refined petrol and the tax component, which account for more than 80 per cent of the retail price, remain the largest factors in the price we pay at the pump,” Mr Sims said.

Fuel price comparison saves money

Fuel price apps and comparison websites continue to assist drivers to identify low petrol prices at individual petrol stations and save money. The ACCC has previously calculated that motorists could save money by shopping around. In late 2019, the RACQ estimated that Queenslanders using the government’s fuel price transparency scheme had saved more than $120 million in its first year of operation.

“We continue to encourage motorists to compare prices through various apps and websites. However, some of the commercial apps are not as comprehensive and timely as the government-run schemes, and not all include the cheaper retail sites,” Mr Sims said.

“Petrol price apps and comparison schemes help people take advantage of lower prices at retail sites and work out when and where to buy, and we encourage their increased rollout and use.”

Prices vary between cities

Average petrol prices in Brisbane were 152.2 cpl in the December quarter, the highest of the five major capitals, and 6.8 cpl higher than average prices in Perth, which recorded the lowest price among the largest capital cities (145.4 cpl).

Meanwhile, average petrol prices in Darwin (143.8 cpl) were more than 5.0 cpl lower than the average in the five largest cities, continuing the city’s trend of having cheaper petrol than the five largest capitals. Recent, contributing developments in Darwin include the opening of a second, low-priced, FuelXpress site in August 2019, and the change in the price setter at Coles Express retail sites earlier in the year.

The ACCC monitors fuel prices in all capital cities and over 190 regional locations across Australia. In the December quarter 2019, average prices in regional locations in aggregate were the same as average prices in the five largest cities.

Gross retail margins higher in the quarter but broadly stable over the longer term

Gross retail margins also rose in the December quarter contributing to higher retail petrol prices, reversing the downward move in the September quarter.

Gross indicative retail differences (GIRDs), the difference between retail prices and published terminal gate (wholesale) prices, are a broad indicator of gross retail margins. As GIRDs include retail operating costs, they should not be confused with actual retail profits. Across the five largest cities GIRDs rose by 3.3 cpl in the December quarter to 15.0 cpl, the highest quarterly figure since 2002. However, GIRDs can be volatile on a quarterly basis, and over the longer term they have remained relatively stable over the past two years (at around 12.5 cpl).

The level of prices, costs and profits vary significantly between retail operations and not all retail petrol sites will be achieving these gross margins. Some will be achieving higher gross margins, others lower.

Background

On 16 December 2019, the Treasurer issued a new direction to the ACCC to monitor the prices, costs and profits relating to the supply of petroleum products in the petroleum industry in Australia. The direction lasts for three years and the ACCC is required to give the Treasurer a report on the monitoring at least once every quarter. This is the first report under the new direction.

Release number: 
38/20
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