Who is profiting from motorists' pain at the petrol pump?
Anyone who drives realises that petrol has become more expensive this year — a lot more expensive.
Figures from the Australian Institute of Petroleum, released by CommSec, show that average pump prices for unleaded petrol hit four-month highs near 153 cents a litre last week.
But NRMA spokesman Peter Khoury told 7.30 the motoring organisation has observed even higher prices.
“We are now seeing prices that we haven’t seen in Australia for four-and-a-half years,” he said.
“Average prices across most of the capitals have now breached $1.60 — in some cases they have almost hit $1.65 — and when we talk average prices we mean there’s a number of service stations well above that.”
However, things have been worse for motorists in the past.
“It’s not the highest price we’ve had in Australia,” Mark McKenzie, the chief executive of the Australasian Convenience and Petroleum Marketers Association, said.
“[If] we go back to 2007, 2008 we saw prices that were going to $1.80, so its not the highest ever.”
OPEC and Trump to blame
The single biggest factor in the petrol price increase has been rising oil prices.
“In the last 12 months the price of oil, which represents about a third [of the petrol price], has gone up by 40 per cent and the exchange rate, the number of Australian dollars you can buy relative to US dollars, has dropped by 10 cents,” Mr McKenzie said.
The global benchmark Brent crude oil price is currently trading above $US80 a barrel for the first time in almost four years.
Mr Koury said that is because of a range of threats to supply, while demand for oil remains strong.
“The main political factors happening globally are the tension between the United States, Iran and Russia — with the threat of sanctions and ongoing sanctions; a trade war between the United States and China; and continued tension in the Middle East, including the war between Saudi Arabia and Yemen,” he said.
Add in continued production problems due to major exporter Venezuela’s struggling economy, and there are numerous threats to output, pushing prices up.
The Australian Competition and Consumer Commission’s chairman Rod Sims lays the blame for rising global oil prices squarely at the feet of the Organisation of Petroleum Exporting Countries (OPEC), as US President Donald Trump has also done.
“The oil producing nations offshore run a cartel and, just like every cartel, they raise prices to consumers,” he said.
“So Australian consumers are paying a lot more for petrol because of the OPEC cartel.
“Unfortunately it’s run by governments so there is nothing we as a competition regulator can do about it.”
Mr Sims agrees that these rising oil prices globally are the main contributor to high petrol prices in Australia.
“Petrol prices are high at the moment because international oil prices are high and that’s the base for the petrol you buy,” he said.
“Secondly, our exchange rate is a bit low — because we are bringing [fuel] from overseas that also pushes the price up.
“Thirdly, you’ve got taxes continually increasing, so around 40 per cent every time you fill up goes to the Government in the form of taxes.
“And, lastly, we do have margins certainly in most major cities a few cents too high, and in more cities a few cents higher than they should be as well.”
‘Bit of extra fat’ in petrol station profits
Petrol prices in some cities are now back where they were when oil prices were almost double the current levels.
Part of that is due to a lower Australian dollar in 2018 than during most of 2008.
However, figures from independent analyst FuelTRAC show that refiner margins in the Melbourne market have more doubled over the past decade from 12 to 26 cents a litre.
Refiner margins are also higher at the moment — they were negative for a while in 2008 — while wholesale margins are actually slightly lower.
Mr Khoury said it was a sign that petrol retailers were profiting at the expense of drivers.
“We are seeing the gap between the retail and the wholesale price on average, which is in effect the profit margins of the oil companies, they’re the highest they’ve been in almost 16 years,” he said.
“They’ve been about four cents higher than the average over that period.
“So, obviously, there has been a bit of extra fat at a local level and we would like to see some of that come back in again, but when we’re talking about average prices of $1.64 the real problems that we’re seeing are global.”
‘If you’re a small player you’re struggling’
Mr McKenzie, who represents petrol station owners, said most of his members were not seeing the benefit from higher gross retail margins.
“At the moment I might buy my fuel at $1.30 and I sell at $1.45, but it costs me 10 to 12 cents to retail it, depending on the business model I’ve got,” he said.
“We’re no different to any other business or industry — we’ve had rising costs in the last 12 to 18 months.
“People tend to forget we don’t fill our cars from a tanker, we fill from a service station that has lease costs, it has electricity costs, it has wage costs. All those sorts of things tend to go up and they’ve been building for some time — certainly in our industry the price of electricity has gone up by 80 per cent in the last two years.”
Mr Sims has some sympathy for that argument, and urged consumers to seek out independent fuel retailers, which typically offer the lowest prices as well.
“If you’re a big player you are making a lot of money, if you are a small player you’re struggling,” he said.
Mr Sims said households were also struggling from the rising costs, with a small difference in petrol prices making a large difference to household budgets and the economy.
“Each one cent a litre is about $200 million it’s costing Australian motorists, so this is real money and it’s really important,” he said.
However, Mr McKenzie pointed out that Australia had some of the lowest petrol prices in the developed world.
“Australia has the fourth lowest petrol price of any OECD economy and the fifth lowest diesel price,” he said.
According to the Australian Institute of Petroleum, the biggest factor in Australia’s relatively cheap fuel prices is its low level of taxation compared to most other OECD countries, especially those in Europe where taxes often make up more than half the pump price, which is frequently above $2 a litre.
Not just motorists footing the bill
Rising fuel prices do not just affect motorists directly, they also increase costs for a lot of other goods and services consumers buy.
For example, any product that needs to be moved may see its price rise due to higher fuel bills for transport companies.
Air travel is also likely to become more expensive if global oil, and therefore jet fuel, prices remain high.
Virgin Australia this week warned travellers of what may lie ahead, although it did say it has hedged more than 80 per cent of this year’s fuel bill at prices significantly lower than current levels.
“Like all airlines, we are seeing increased fuel costs and, whilst the Virgin Australia Group has a comprehensive hedging program in place which helps to offset this increase, we will continue to monitor the oil price closely and review our pricing structure accordingly,” it noted.
As with many other airlines, Virgin is also buying more fuel efficient planes to try and lower its costs.