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Petrol truly is competitive

There seems to be a groundswell of discussion about the prices that we, the consumers, are paying at the bowser for our petrol.

In order to find out a little more about the process that determines this, I spoke to the font of all knowledge in matters petroleum – Brian Reynolds, of the Petroleum Retailers Association of WA.

As Mr Reynolds was quick to point out, from his many years of experience and observation of the industry, a rough rule of thumb indicates that a rise of $1.00 in the price of the feedstock, crude oil, would lead to an increase in the price of petrol at the pump of one cent.

If you then look back at the price of crude oil over the last eighteen months the following scenario emerges.

Approximately eighteen months ago, the price of oil had fallen to around $10.00. This was the lowest price that we had seen (in real terms) for well over twenty-five years. At that time, the OPEC cartel decided to enter into another of its interminable agreements to cut production.

This agreement, unlike most of the others, has actually stuck up to this point. The result of the cutback in production, and therefore supply, with no concurrent fall away in demand, will cause prices to rise.

The price of crude oil has risen to approximately $20.50.

This $10.00 rise in prices has translated in Mr Reynold’s algorithm to a rise of around ten cents at the pump.

The taxation component is another issue that determines the prices that we pay.

If the tax component was removed from the equation, then we have the second or third cheapest petrol prices in the world.

The taxation component of petrol in Australia is 43.5 cents per litre on unleaded fuel, 45 cents on leaded fuel and 43.5 cents on diesel fuel.

If there were no taxation component, a rough translation of prices indicate that for a litre of crude oil to be refined to a litre of petrol would mean a petrol price of around 20 cents a litre.

Add the tax and we have prices approaching those that we are paying now.

The competitive nature of the marketplace for petroleum products is demonstrated by the burgeoning strength of some of the independents.

For example, in WA, Gull and Liberty have moved to positions of considerable strength and competitive behaviour.

Further, the rapidity at which the prices move, either up or down, is another indication of the competitive nature of the market.

There are no single players that are able to influence the price of the product other than through their own supply levels.

There is no maximum price that is set by the participants in the industry.

At one time the Prices Surveillance Authority and its successor, The Australian Competition and Consumer Council determined the maximum price that could be set by market.

This is no longer the case. The market determines the price, both at the feedstock end as well as the consumer end. Lately, the feedstock end has been rising. Hence the price rises.

There have been some mutterings that cheap fuel from Singapore may be on its way to WA. Apparently the new oil refineries in India have left the Singaporean refineries with extra fuel.

However, it is hard to tell whether this fuel is of high grade or low grade such as diesel. Singapore itself has no oil resources of its own and basically acts as a refinery for other people’s oil.

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