Why The Cost Of Fuel Fluctuates In Australia | How Fuel Prices Work
The price of petrol fluctuates day to day, and week to week. While it may not seem like there’s a method to the madness, there are several predictable factors that affect the price of fuel in Australia.
We can divide these factors into those that affect prices in the short-term, and those affecting long-term prices. The short-term factors have a more noticeable effect on prices, so we’ll start there.
Petrol Price Cycle
The petrol price cycle is the regular movement of petrol prices going up and down, over several days or weeks. The cost of petrol might spike one day, fall for two weeks, then spike again. This is one of the only petrol price factors actually caused by petrol retailers, as it’s a deliberate pricing decision.
The difference between the lowest and highest price is around $0.30, which is a difference of $15 for 50 litres! While the length of the cycle varies, the regularity is uncanny. Here are several price graphs from the ACCC’s FUELtrac:
Public Holiday Fuel Prices
Another short-term factor affecting the price of fuel are public holidays. There’s a higher demand for petrol over long weekends, so petrol retailers time their prices to peak. As a result, the cost of fuel is at its highest over long weekends.
However, these peaks tend to be no higher than the average peak in the petrol price cycle. So, technically public holidays don’t raise the price of petrol, but determine when the price peaks.
But that makes no difference at the pump. Petrol prices are higher than average over public holidays, however you slice it.
International Benchmark Prices
The single biggest factor affecting the long-term price of petrol is the international benchmark price for petrol, as other markups are just a percentage of the wholesale price. Global oil prices change for many reasons, including manufacturing costs, supply and demand, and competition.
Manufacturing costs: When oil is easy to extract, it’s typically cheaper. Because oil isn’t renewable, wells eventually dry up. Along with inflation, this mostly explains why the price of fuel increases over time.
Supply and demand: When supply drops, prices rise. This is what happened in the 1979 oil crisis, when the Iranian revolution reduced global production by 4%. That’s not much, but it made crude oil double in price!
Competition: Fewer oil producers makes it easier for single countries to control prices. This contributed to the 1973 oil crisis, when Middle Eastern producers proclaimed an embargo. This video is a fascinating look at how global oil production has changed over time.
Value of the Australian Dollar
Because international benchmark prices are set in US Dollars, the buying power of the Australian Dollar affects retail petrol prices.
When the Australian dollar is low, the price of fuel is higher. When the Aussie dollar is high, petrol is cheaper.
Costs to Fuel Retailers
Running a business isn’t cheap. To sell you petrol, a retailer needs to pay for rent and salaries, insurance and utilities, as well as wharfage, transport, freight, and storage.
Retailers also need to make a profit, which is determined by competition in the marketplace. More fuel retailers generally means smaller margins and cheaper fuel.
This explains the difference between fuel prices in different locations. You’ll pay more for petrol in Alice Springs than in Adelaide, due to the extra cost of transporting fuel through the Australian outback.
GST and Fuel Excise
Petrol is subject to more taxes than most goods. GST adds 10% to the tax-free price, or around 9% of the price you pay. Currently that’s around $0.14 per litre.
More significant are the fuel excise rates. These are automatically indexed to inflation, so increase steadily over time.
For unleaded and diesel fuel, the excise rate at the time of writing is $0.418 per litre (~42 cents). The excise for LPG fuel is currently $0.137 per litre (~14 cents).
How to get the best petrol price
Knowing why the cost of fuel fluctuates helps you get the best price when you fill up. Here are some ways to get more petrol for less dollars.
Buy petrol when it’s cheap:
Bookmark the ACCC’s price cycle page, and fill up when the price is low. This is easy in Perth, where petrol is cheap on a Monday, but you’ll need to keep an eye on the cycle in other cities.
Plan ahead for big trips:
If you’ll soon use a lot of fuel, on a weekend trip for example, check the price cycle ahead of time to avoid filling up in a peak. This especially applies to public holiday weekends.
Use a petrol price app:
Shopping around for petrol is easy with a petrol price app. These show you the real time price of petrol in your area. There are lots of choices including FuelCheck (NSW), Fuel Map (National), GasBuddy (National), and Petrol Spy (National).
The major supermarkets include fuel discount coupons with purchases of $30 for their partner service stations. Collecting these might give you a cheaper option when you’re comparing the cost of fuel.
Use GoGet, and never pay for fuel again:
If you’re done paying for fuel entirely, there’s an easy way to avoid it. Going car-free is easy with GoGet car share, and the cost of fuel is included in your membership (as is rego, insurance, and maintenance).
Thanks to GoGet, tens of thousands of Australians are already living without owning a car, and no longer stress over the price of petrol. Why not join them?