As any Australian knows, it is difficult to know how to read petrol prices in Australia. The price of fuel fluctuates rapidly and can differ from city to city, seemingly without reason. This affects all Australians, no matter where they live. People who live far away from cities and with limited public transport are especially exposed to fluctuating fuel prices. This is because car transport is a vital part of daily life.
Meanwhile, city dwellers can see petrol prices rise or fall weekly – or even daily. While the price fluctuations sometimes seem arbitrary, there are a number of factors at play, at home and abroad.
What kinds of fuel does Australia use?
Australian vehicles typically use three main types of fuel: petrol, diesel and liquefied petroleum gas (LPG). LPG is a fuel made of propane or butane, or a mixture of the two. Some people consider it to be more environmentally friendly than petrol or diesel. This is because LPG does not emit the same amount of pollutants and greenhouse gases. However, it comes from natural gas and oil processing and, therefore, is not renewable.
LPG is less popular than it once was, as the cost of converting a vehicle to LPG has increased. In addition, the Australian government no longer subsidises these conversions. The reason for this appears to have been the low uptake of a tax rebate scheme for LPG drivers.
What are the average petrol prices in Australia?
Australian petrol prices have been volatile throughout 2021 and 2022. In January 2021, the average petrol price in Australia’s five largest cities was AUD $1.19 per litre. Prices steadily rose to exceed AUD $1.70 per litre in November 2021, and peaked at approximately AUD $2.15 in March 2022. By July, they fell back to just over AUD $1.70 per litre.
The rise in the petrol price has been attributed to a number of causes, primarily an increase in demand for oil globally as countries emerge from COVID-19 lockdowns, which led to an uptick in manufacturing and transportation. The rise in 2022 is also driven by Russia’s invasion of Ukraine, which has disrupted international fossil fuel markets.
What are the prices of other fuels in Australia?
The price of LPG has been slightly cheaper than petrol. Between June and September 2022, the price of LPG averaged AUD $1.09 per litre.
Diesel prices have been higher than petrol and LPG. Between June and September 2022, the price averaged AUD $2.10.
How are fuel prices decided?
Fuel prices are influenced by a number of factors, both domestic and international, according to the Australian Competition and Consumer Commission (ACCC). There are international benchmark prices, the Australian and US dollar exchange rates, competition levels in different areas and retailer pricing decisions.
International benchmark prices
This is the biggest factor influencing the price of fuel, and these changes take about two weeks to affect Australian consumers. Australia’s petrol and diesel prices are benchmarked against Singaporean prices. This is because Australia forms part of the Asia-Pacific oil market. Australia imports about 20 per cent of its fuel from Singapore and South Korea.
Singapore is the region’s main oil refining and distribution centre. The Singapore price makes up the vast majority of the wholesale price of fuel. The minority comprises a combination of taxes, shipping, insurance and other costs.
The Singapore price, in turn, is influenced by global oil prices. Economists determine this price by using the basic principle of supply and demand. When there is an oversupply of oil in the market, the price of oil is lower. However, this does not always filter down to consumers, and it is frequently refineries that take advantage of lower prices. This means they can buy oil more cheaply and make a larger profit from selling it to retailers. But, this does not always change the price of fuel at the petrol station.
The situation is slightly different for LPG. The Saudi Contract Price determines the price of LPG in Australia. This is the price of propane and butane traded in the Asia-Pacific region.
Australian dollar value
Internationally, oil is priced in US dollars. While the price of Australian fuel is mostly determined by international benchmarks, like the Singaporean one, these international benchmarks are traded in US dollars. This means that the value of the US dollar to the Australian dollar could affect oil prices.
Fuel wholesaler and retailer costs
Fuel retailers and wholesalers – businesses that sell fuel to consumers – need to cover their costs. These costs include insurance, transport, salaries and rent. They also need to make a profit, and profit margins are also determined by how much competition there is in the marketplace.
In Australia, petrol prices tend to increase over long weekends and public holidays, as there is an increase in demand.
How does the price of petrol fluctuate?
Oil price fluctuations happen for various reasons, both locally and internationally. On the international front, a number of issues can influence the extraction of oil and, therefore, the oil price. This includes changes in shipping routes, domestic political upheaval in oil-producing states and even natural disasters. The impact of Russia’s war on current prices demonstrates that Australia’s petrol prices are particularly vulnerable to international geopolitical events.
Domestically, prices can fluctuate between cities and retailers. Economists call these fluctuations price cycles. The cause of them can be an increase or decrease in demand on any given day or local retailers adjusting their prices. However, some experts have referred to this situation as baffling, as other countries do not see these fluctuations between cities. Price cycles usually see a drop or increase with petrol by about AUD $0.30 over a few weeks or days, according to the ACCC.
Ultimately, oil prices fluctuate because of supply and demand principles. Oil is not a renewable commodity. Therefore, oil wells dry up, causing a shortage of supply. Any reduction in supply will cause a rise in oil prices, meaning consumers usually have to pay more for their petrol or diesel.