Oils Prices Lowest in a Decade yet Australians Are Still Being Ripped off
A report conducted by the Australian Automobile Association (AAA) has shown that the average retailer profit margin on oil has grown by 35% since February 2012. That growth in monetary terms is between 8.9 to 12.3 cents per litre. This news comes as the Australian Consumer and Competition Commission (ACCC) plan to release its first quarterly report on petrol prices this week.
It’s a great relief for many customers to see the price of oil drop to its lowest since 2008. Everybody across the world, let alone Australia, deserves the right to cheaper oil which has been a very welcome change. Yet, seemingly greedy retailers have decided to use the drop to line their own pockets somewhat greedily, by seemingly taking advantage of the situation.
Lets look at the matter pragmatically. If for example we assume that the average motorist travels an annual distance of 13,200km and consumes roughly 11.1L / 100km, then they'd be paying over $50 in extra margins (ones that retailers have introduced which didn’t exist three years ago). If you happen to travel further distances, closer to 26,400km per annum, you would be paying $100 more to the retailer for the exact same amount of fuel compared to 2012.
Fuel prices have dropped considerably compared to what we have been accustomed to over the past 5 years. And to be fair to some retailers, a few have reduced their prices of Unleaded E10 to as little as $99.9 cents per litre (a price not seen in Sydney since 2009).
Australia’s regional market for petroleum-based products is the Asia-Pacific market, as opposed to the commonly mentioned West Texas intermediate which is the US crude benchmark. MOPS95 Petrol is the Singaporean price of unleaded petrol and is the key benchmark for Australia.
To meet demand, Australia imports 20% of its petrol, mainly coming from Singapore and South Korea. Singapore is the regions main refining and distribution centre whilst also being one of the worlds largest. Below you can see the various fuel prices-per-litre over the past 3 years:
Despite the overall drop in prices in recent times, essentially caused by an oversupply of oil in the global markets, instead of moving their prices fully in line with oil trends, retailers have limited their drop in prices at the pumps while increasing their profits. If you compare today's margins that retailers are making on fuel compared to those of 2012, it's easy to see why the pumps are smiling all the way to the bank. According to this news.com.au article, an Australian driving a Toyota Corolla (2014 car of the year) is now incurring an additional $1.87 per tank in costs. Likewise, Aussies driving a Holden Commodore are paying in the region of an extra $2.41 per tank while Ford Ranger drivers pay an additional $2.72 per tank due to retailer's increased margins.
Singapore’s petrol prices, shipping costs and Australian taxes represent almost the entire wholesale price, which is typically 95%. The remaining 5% of cost is associated with insurance, a quality premium for Australian fuel standards, local terminal costs and a marketing margin.
James Goodwin, the acting chief executive of the AAA said “We’re deeply concerned the full impact of lower international oil prices has not been passed on to motorists in full.”
A spokesman from the ACCC also made a statement earlier last week related to retailer's pushing up margins by saying “The ACCC have observed some increase in margins in recent years, and this has featured in our recent monitoring reports.”
Certain retailers have been known to raise their margins by as much as 18%, with the majority sitting at around the 15% mark. The ACCC and the government are trying to deter from doing this retailers by implementing more regular reporting of their margins. So far the reports have found that capital cities were roughly in line with international oil changes, but regional areas were greatly off track. The likely reason being that regional pumps do not have as much competition and can therefore get away with charging motorists too much. This is in line with my previous article on how competition drives local petrol prices.
So for the time being we Aussies will have to accept the lower fuel prices in the knowledge that retailers are taking a bigger chunk of the profits for themselves. All I would say is if you use a regular retailer, ensure you have one of their loyalty cards and get as much out of them as possible. Otherwise consider buying cheaper fuel at Costco if you're lucky to have one relatively nearby.