Global oil prices have fallen, so why is it still so expensive at the pump?

Global oil prices have fallen, so why is it still so expensive at the pump?

Motorists could see fuel costs drop below $2 a liter soon, but diesel remains stubbornly high despite a drop in the price of crude oil, which is used to make both.

FuelTrac’s analysis shows that there is an increasing gap between the wholesale price in Singapore and what you pay at retail. In the case of diesel in particular, dealers earn more per liter as a result.

“The longer they keep their retail dispenser prices high while Singapore and wholesale prices fall, they increase their retail profit margins,” says Geoff Trotter, General Manager of FuelTrac.

The lines show the relationship between the retail margin – the amount retailers earn – for unleaded petrol (blue) and diesel (yellow) sold in Australia versus the ‘terminal gate price’ or wholesale cost.(delivered)

Most of the fuel pumped in Australia comes from Singapore, and the island’s terminal price – the wholesale cost – affects what you pay as a consumer when it’s sold at service stations here. But the spread between the Singapore price and retail prices has skyrocketed over the past month, from under 10 cents a liter to nearly 35 cents a liter for diesel.

One explanation for this is that there is a lag – what you pay at the pump today is not linked to the price in Singapore yesterday. But the delay is generally just two weeks and retail prices remain high despite falling prices in Singapore and globally.

Singapore's President Halimah Yacob at the picnic
Singapore’s President Halimah Yacob at a picnic in the Singapore Botanic Gardens. As Australia’s ability to refine oil products has declined, we are increasingly relying on the island nation for fuel.(Facebook: Halimah Yacob)

“Yes, two weeks should allow stocks to move through the supply chain and we are seeing evidence of price falls for (unleaded) petrol in some capital cities such as Adelaide, Brisbane, Melbourne, Sydney and Perth, but not Darwin or Hobart. At the same time, the (price for) diesel is held up almost everywhere in capitals and district towns.”

relationship between retailers

But retailers claim that’s not true and that the falling prices come as supply moves through the system being bought at the newer, lower prices.

This graph from the Australian Institute of Petroleum shows the difference between the average wholesale price paid by petrol stations and the average retail price paid by drivers.

AIP
Although fuel prices have skyrocketed since the Russian invasion of Ukraine, retailers’ margins have not been consistent or particularly high. (Australian Petroleum Institute)

The blue line shows the ups and downs of weekly movement, but the long-term average remains at around 15 cents per liter. (This data relates to petrol prices, not diesel). It’s worth noting that when it comes to gasoline, “margin” doesn’t mean a clear profit for gas station owners. There are costs involved in running a retail store, including transportation, marketing, rent and wages.

Gasoline can fall down

The national average price of unleaded petrol fell 8 cents last week to 204.1 cents a liter, according to data from the Australian Institute of Petroleum.

If you’re looking to pay less at the Bowser, there’s more good news. The wholesale price fell by 17.5 cents per liter. Converting to Australian dollars, the price in Singapore fell $25.66, or 13.7 percent, last week to hit a 20-week low of $161.52 a barrel, or 101.58 cents a liter. The price in Singapore has fallen by 40 Australian cents per liter in the last five weeks.

“Average gas station prices across the country have fallen just 8 cents per liter, so consumers and transport companies can expect savings,” said Craig James, CommSec’s chief economist, in a note to the market. “The biggest uncertainty is whether the price declines will be sustainable.”

diesel holds

Mr Trotter says retailers are keeping the price of diesel high amid significant price falls in Singapore.

“Given that diesel accounts for about 20 billion liters per year and is the most important fuel in road, rail, agriculture, mining and shipping (industry), it arguably has the greatest impact on price inflation, since it accounts for a significant percentage of all shipments to Australia”.

The gap between falling petrol prices and static diesel prices sees these consumers “significantly disadvantaged” as a retail price differential erupts to nearly 40 cents a litre.

drive around

Whatever you put in your tank, fuel prices still vary wildly across the country. The price of petrol pumps containing lead in Adelaide was around $1.68 a liter yesterday. In Melbourne, gasoline sold for $2.13 a liter.

In March, the then-government announced a temporary fuel tax cut – 22 cents a liter for six months – and tasked Australia’s Competition and Consumer Commission (ACCC) with making sure it is passed on to consumers.

The watchdog, which examines prices in major cities and nearly 200 regional locations, reiterates that many factors go into what consumers pay: international prices, the US exchange rate and gas price cycles in our major capitals.

“When wholesale prices fall sharply in a short period of time, lags between changes in wholesale prices and retail prices often have the effect of causing gross retail margins (ie, the difference between wholesale and retail prices) to increase in the short term,” an ACCC spokesman said in a statement.

The temporary reduction in mineral oil tax will not be extended.

Treasurer Jim Chalmers said the relief for motorists would cost $3 billion over six months.

“My expectation, and the expectation I would encourage people to have, is that we can’t afford to continue this gas cut forever,” he said.

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