Why The Cost Of Fuel Fluctuates In Australia | How Fuel Prices Work
The price of petrol fluctuates day to day, and week to week, though at the moment, it seems to only be going up! While it may not always seem like there’s a method to the madness, there are several predictable factors that affect the price of fuel in Australia, and some unpredictable ones.
We know that recent overseas conflicts have increased volatility in the global oil market, though there are a number of other factors that have an impact on the price you pay at the pump.
The two biggest factors in determining the price of petrol in Australia are the International benchmark price and the strenght of the Australian dollar. If you’re asking “why are fuel prices going up?”, it’s probably one of these 2 reasons that is to blame.
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, competition and due to global conflicts.
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 might not sound like 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.
Conflict: Political stability in oil-producing countries has an impact on fuel prices. Russia’s 2022 invasion of Ukraine, for example, had a major impact on the price of oil.
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 usually cheaper.
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 and isn’t related to the wholesale price of oil.
The difference between the lowest and highest price is up to $0.35, which is a difference of $17.50 for 50 litres! While the length of the cycle varies, the regularity is uncanny and you can use these price cycles to help you figure out when to buy fuel (and when not to buy fuel).
The petrol price cycle will impact your fuel costs in Sydney, Melbourne, Brisbane, Perth and Adelaide, though this doesn’t occur in Canberra, Hobart or Darwin.
Buying fuel at the bottom of the petrol price cycle can save you up to $800 over the course of a year. The ACCC monitors fuel prices and provides fuel buying tips to help save you money.
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.
More significant are the fuel excise rates. These are automatically indexed to inflation, so increase steadily over time. It is indexed twice a year in line with CPI.
Fuel excise rates can be found here.
Public Holiday Fuel Prices
There is a lot of debate around what impact public holidays have on fuel prices in Australia. 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 tends to be 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 they do 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 so you are best to fill up as far ahead of a long weekend as you can in order to avoid getting stung.
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. Reminder, this can save you up to $800 per year! It’s 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).
Use Coupons:
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.
Drive efficiently:
While this won’t lower the price you pay at the pump, it will mean that you don’t need to visit it quite so often. Check out our tips for fuel efficient driving.
Use GoGet, and never pay for fuel again:
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