Tuesday, October 21, 2008

Could we be paying too much for our petrol?

Australian petrol prices have fallen by less than 14 cents a litre at a time when the international oil price has more than halved.

The figures, provided to The Age by Australia's petrol prices commissioner designate Joe Dimasi, suggest that Australian retailers and oil companies have been dramatically widening their margins - although the commissioner is not ready to jump to that conclusion.

Tapis crude, the price benchmark most relevant to Australia, peaked in July at $US147 a barrel and on Sunday was just $US70 a barrel. The investment bank JP Morgan says $US60 a barrel is likely sometime next year.

Adjusted for the slide in the Australian dollar, the crude oil price has fallen from a peak of $A153 a barrel in July to $A100.

The move suggests that the Australian retail price of petrol should have fallen 57 cents a litre since July. Instead, it is down 13.9 cents...

...hovering just under $1.50.

Had Australia's petrol price fallen in line with the international oil price we would now be paying around $1.05 a litre.

But Mr Dimasi says the comparison is misleading.

"People get mixed up on this all the time," he told The Age ahead of his official appointment as petrol prices commissioner next month.

"What you need to look at is Mogas 95, which is the average daily Singapore price of refined unleaded petrol. It's that that determines the Australian price because it is imported in Australia.

"Its price is down only 16.6 Australian cents from the peak. The average five-city retail price in Australia on Thursday last week was down 13.9 cents.

"It is true that the Australian price hasn't come down by as much as the Singapore price. Our price appears to have fallen by about 2 to 3 cents per litre less, depending on which day you measure it."

Mr Dimasi last week wrote to the big four oil companies and to Woolworths and Coles seeking an explanation.

"Their initial response is that things are very volatile, that they look at things on a daily basis and that their pricing practices haven't changed.

"I have asked them for more detailed explanations."

Asked what he and the Competition and Consumer Commission could do if they were unsatisfied with the answers Mr Dimasi replied there was "quite a lot we can do".

"The first step is to just be confident of all the facts. Right now we are through their books and looking at their costs and prices and profits.

"But in the meantime I would like to do away with some myths. People think that it's the crude oil price that matters, but it is really Mogas 95. I'd like to get that price in the paper every day, so that people can get a better sense of what's going on."

Asked why Mogas 95 didn't move in line with the crude oil price, he said there were all sorts of reasons.

"You might get a refinery that might be out, you might get a holiday season, demand is different during winter and summer ...

"At the end of the day, in the long term, the refined petrol price moves will move with the crude oil price, but it's not a parallel link."

Going down:

Since July

$US crude oil

down 52%

$A crude oil

down 35%

$A Singapore unleaded

down 16.6 cents

$A Australian unleaded

down 13.9 cents