When will petrol prices go down?

7 October, 2022 By: Alex Forrest

Fuel prices have had so many ups and downs in recent months, it’s hardly surprising that many consumers are wondering what on earth is going on.

Many factors affect fuel prices in WA, including global factors such as geopolitical instability, shipping availability and freight rates, which are largely out of the control of local fuel sellers.

But the other major influencing factor is the behaviour of local fuel retailers, which is most obviously manifested in the Perth metropolitan area as the petrol price cycle.

This is a deliberate and carefully orchestrated pricing strategy designed by Perth retailers to get motorists to buy fuel at higher prices with higher average retail margins (15 – 30 cents per litre) than if pricing was set at a stable 10-12c above the wholesale price.

These pricing decisions are, of course, made by those managing these businesses, and not those behind the counter. These workers should not be on the receiving end of motorists frustrated with fuel prices.

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The ups and downs of Perth’s petrol price cycle are frustrating and confusing for many motorists, especially at the moment when some retailers are moving back to a weekly price cycle while others (primarily Ampol) are sticking with the fortnightly price hike, at least for the time being.

Disrupting Perth's petrol price cycle

Coles Express first disrupted the fortnightly cycle in June 2022.

Coles was then joined by BP, 7-Eleven, Puma, Vibe and some United and Caltex Woolworths outlets, which have been increasing prices on the usual fortnightly price hike day (currently Wednesdays), but then dropping their prices sharply in line with a weekly cycle and then raising them again on the following Wednesday, midway through the fortnightly cycle.

But they only bring their prices up so they’re back in line with the pricing of the other local fuel retailers which are sticking with the fortnightly cycle (now only Ampol), so they compete with them until the two-week mark and then the cycle begins again.

Therefore, at retailers other than Ampol, every week it will usually be cheaper to fill up on the preceding Monday or Tuesday. If pricing behaviour continues as it has recently, most sites including Ampol sites will be cheapest every second Tuesday.

Immediately after the price rise on Wednesdays, retailers begin dropping their prices from Thursday over several days. In recent weeks, Ampol has been dropping its prices across a fortnight, while other retailers have been discounting their prices more abruptly over a week.

Among the primary reasons for the petrol price cycle changing to fortnightly during September/October 2021 was the increasing number of motorists becoming familiar with the previous weekly price cycle and filling up only on the cheap days.

With most fuel sales occurring on days when retail margins are small, there’s little fat left on the bone from which to draw a profit.

When fuel sellers change the price cycle, consumers need to re-learn when the cheapest days are to buy fuel. When the cycle changed from weekly to fortnightly in October 2021, it also became more difficult for motorists to time their fill-ups with the cheap days because they were occurring only fortnightly, and most drivers need to refill their tanks more often than that.

So not only did drivers have to re-learn when the cheapest days were, they also had to manage their fuel consumption more carefully if they wanted to continue to save money on fuel.

However, many motorists are finding themselves paying more for fuel than they wanted to or expected.

But in a fuel market like this, there are some levers at the disposal of drivers keen to push prices down.

Where you buy fuel is important

At the same time that fuel retailers are trying to get customers to pay more for fuel, they are also trying to take customers from each other, and competition between fuel retailers is a good thing for consumers.

There isn’t much that a fuel retailer dislikes more than losing business to a competitor down the road, and motorists should keep targeting those cheaper retailers to encourage continued competition. For the cheapest fuel prices near you always remember to check FuelWatch.

If there is strong competition between service stations within a relatively small area (such as in one suburb), pricing at each of them is likely to be quite keen.

In areas where there are few retailers for motorists to choose from, there’s a stronger chance that prices will be higher.

With several fuel outlets near each other, competition is likely to be stronger and in the best-case scenario, prices will be driven down as retailers vie for the dollars of passing motorists.

The demographics of a particular area can also be a factor. In areas where higher prices are more likely to be tolerated by less price-sensitive motorists, prices will be higher.

For example, the average price for unleaded petrol in Perth’s western suburbs is often higher than the average for the rest of the metropolitan area.

Also affecting fuel prices are the volumes of fuel a retailer is selling. If retailers are selling lower volumes of fuel than is typical, then they have fewer litres of fuel to draw revenue from. Therefore, they may charge more for each of those litres.

The difference 1 cent makes

Of all the goods sold at a fuel retailer, petrol and diesel are typically the lowest margin items they sell.

But because they sell a lot more litres of fuel than chocolate bars or take away coffee – a few cents per litre can make a big difference in the amount of revenue coming in.

Western Australians buy a staggeringly large amount of fuel. During the 2021/22 financial year, more than 1.7 billion litres of petrol was sold in WA. The vast majority of that was sold through retailers (1.54 billion litres), with the remainder sold direct to industry.

That means an increase of just 1 cent per litre across all the petrol sold in WA over last financial year would have resulted in over $17.4 million of extra revenue going into the collective coffers of fuel companies.

Most of the diesel used in WA (83 per cent) is used by industry (mostly resources and agriculture), with the remainder sold at the retail level to consumers.

A 1-cent increase in the cost of all diesel fuel consumed in WA over a year amounts to an additional $76.5 million going to fuel sellers’ collective pockets.

Global factors impacting our fuel prices

Geopolitical issues in distant countries, crude oil prices and the value of the Australian dollar are among the most reported factors impacting our fuel prices, and these do indeed play important roles in determining the broad trends of fuel pricing in Australia.

But among the far more direct influences on average fuel pricing trends in Australia are the international benchmark prices for refined petrol and diesel.

The benchmarks are the prices petrol and diesel are selling for in the Asia-Pacific region, and they’re the prices that fuel pricing in Australia is benchmarked against.

With most of the fuel consumed in Australia being refined overseas, fuel destined for Australia is traded based on these benchmark prices. The benchmark for petrol is known as Singapore Mogas 95, and for diesel it’s Singapore Gasoil.

Ensuring fuel security in Australia

The reason Australian-sold fuel is aligned with Singapore benchmarks is to keep fuel available here.

If Australia’s fuel was being sold at below Singapore prices, our fuel suppliers would have no commercial reason to import it because they would have to sell it at a loss, which would create an even more unstable fuel security situation than we currently have.

Further, for the two fuel refineries remaining in operation in Australia (Ampol's facility in Brisbane and Viva Energy's refinery in Geelong), if fuel was selling for more overseas than in Australia, there would be more incentive for them to export it than sell it domestically.

As these benchmarks change, prices at the pumps in Australian capital cities typically change approximately two weeks later. In regional areas, those changes will take longer to flow through given the less frequent turnover of each batch of fuel at most regional retailers.

With crude oil as the primary feedstock in the production of petrol and diesel, its price will affect the benchmarks. The impact of crude oil prices on pump prices is very real, but it is less direct because it’s further up in the supply chain, where any changes in refining costs and other influences are yet to be applied.