Why petrol costs so much

Moving Well | Leanne Tolra | Posted on 26 September 2018

 RACV experts explain why petrol prices have spiked and offer some fuel-saving tips.

Fuel prices in Melbourne this week hit 167.9 cents a litre and averaged a four-year high, just as the school holidays began.

RACV Vehicle Engineering Manager Michael Case says average petrol prices are influenced by an underlying increase in oil prices. The increased oil price affects the wholesale price of refined petrol and has a flow-on effect at the pump.

“Fuel is essential, an increase hurts family budgets and contributes to the cost of living. It’s up the industry to justify current pricing,” Michael says.

Average petrol prices have increased dramatically in Melbourne, Sydney, Brisbane, Adelaide and Perth since April, the Australian Competition and Consumer Commission (ACCC) reports.

woman filling up petrol tank with a green fuel pump

How do Australian prices compare?

Australia is ranked the fourth cheapest of the 33 counties in the Organisation of Economic Cooperation and Development (OECD), according to the ACCC’s Quarterly Report on the Australian petroleum market.

Why do prices fluctuate so heavily?

The petrol price cycle is a function of competition and occurs as fuel stations discount fuel to compete for a share of the market.

When the discounting reaches an unsustainable level and profit margins become too low, the retailers drive the price back up again. Their competitors follow suit and prices at the pump rise again. The fuel cycle lasts for four to six weeks.

An ACCC report released last month reveals the supermarket chains’ share of the retail petrol market has declined and independent retailers now have a bigger share of the Australian market. This is contributing to increased competition.

How can I save money on fuel?

  • Time your purchases to take advantage of price cycle movements. RACV offers a map tool on our website that highlights when prices are low in the cycle racv.com.au/fuel
  • Top up rather than filling up when prices are high. This helps to average out your fuel budget.

Other factors that affect fuel prices

  • Australia imports around 20 per cent of its petrol from Singapore and South Korea. To maintain import/export parity, local wholesale prices must closely follow the trends of the international price of refined petrol known as Singaporean Mogas 95.
  • The Australian Government fuel excise (tax) of 41.2 cents per litre adds to the cost of fuel.
  • The price of oil, which represents up to 40 per cent of the price of petrol, has risen substantially in the last 12 months.
  • Terminal Gate Prices (TGP), or wholesale prices, which include the excise and GST.
  • Retailer operating costs such as transportation, site maintenance, wages and profits.