Record fuel prices to continue

Fuel prices around Australia hit close to record highs last weekend, but key stakeholders disagree on who is to blame and how long fuel prices will remain high.

The average price across Sydney, Brisbane, Perth, Melbourne and Adelaide was 167.7 cents per litre – the second-highest figure since records began in 1994, just six months after January’s record high fuel price.

Last month Brisbane was the most expensive capital city in which to buy fuel, with prices 4.3cpl higher than in Sydney and 13.5cpl higher than in Adelaide, the cheapest capital city to buy fuel in.

The RACQ's Monthly Fuel Report for June showed the average unleaded petrol price of 150.3cpl in Queensland was the highest in almost three years and 4.1cpl higher than in May.

The report said the average Brisbane diesel price in June was 140.3cpl – 3.8c dearer than in May.

More recently, the daily average price for unleaded petrol hit 173.5cpl in Brisbane and 173.3cpl on the Gold Coast on Tuesday this week, breaking the previous record set in December 2019.

Fuel was still cheaper in regional Queensland, but the RACQ said the average price for unleaded petrol was still 1.4cpl higher in June than the previous month, at 134.1cpl for unleaded and 134.2cpl for diesel.

Industry experts say fuel prices aren’t set to go down any time soon, thanks to increasing global demand as economies are re-opened following COVID-19 lockdowns.

In the meantime, the RACQ says fuel retailers have retained “unreasonably high retail margins” to prop up their profits while demand is lower.

“We’re at the high point in the fuel cycle in SEQ,” RACQ spokeswoman Renee Smith told the ABC.

“Oil prices are at a two-year high and retailers have retained unreasonably high retail margins.

“During the pandemic, servos had high indicative retail margins because so many people weren’t driving, so fuel sales volumes were low – but now sales are back to normal, the fact they’re still charging these exorbitant prices is frankly unfair.”

The RACV report warned the coronavirus pandemic was the biggest factor in fuel prices due to its influence oil demand.

“A resurgence of COVID-19, especially one of the new strains, could significantly reduce demand and lead to falls in the oil price,” said the report.

“However, if vaccine rollouts continue and become more widespread, and COVID retreats, the oil price will continue to strengthen.

“A sustained oil price rally is likely to lead to new record high oil prices and record high retail prices in SEQ in the coming months.”

FuelTrac petrol price monitoring service general manager Geoff Trotter said South East Queensland motorists were being “ripped off” and that it was “about time” the Queensland government did something to stop the price surges.

“If the government was serious, they could put a cap on these companies and it wouldn't go above a certain level at any given time,” Trotter told ABC Radio Brisbane this week.

“We'd do away with these petrol price shocks that hit us every few weeks.”

But Queensland premier Premier Annastacia Palaszczuk deflected blame for the recent fuel price surge.

“I'm not in charge of setting the prices. The market sets that,” she said in a news conference yesterday.

“I don't think we can do anything more but at least people can shop around [for] where there is cheaper fuel in their local area.”

A report from the Australian Competition and Consumer Commission (ACCC) published on Tuesday said cuts in oil production by OPEC were to blame for high fuel prices locally.

According to the ACCC’s latest quarterly fuel price monitoring report, the average retail price for petrol across Sydney, Melbourne, Brisbane, Adelaide and Perth was 133.4cpl in the March 2021 quarter – up 12.0cpl from the December 2020 quarter. Adelaide posted the largest increase at 18.0cpl and Brisbane the smallest at 9.6cpl.

“What we are experiencing in Australia is a flow-on effect of higher international crude oil and refined petrol prices,” ACCC Chair Rod Sims said.

“The OPEC cartel controls a huge amount of global oil supply. Its agreements to restrict supply means higher crude oil prices which largely influence refined petrol prices. The higher price of Mogas 95, the benchmark for refined regular unleaded petrol in the Asia-Pacific region, means we are paying more for petrol at the bowser.”

The ACCC report said demand for petrol in the first quarter of this year remained below pre-pandemic levels, with petrol sales volumes across Australia declining slightly between October 2020 and March 2021.

“In the second half of 2020 national petrol sales partially recovered when some COVID-19 restrictions were eased. However, lockdowns in Brisbane, Perth, Melbourne and parts of Sydney, and floods in New South Wales and Queensland, contributed to sales declining slightly in the March quarter 2021,” Sims said.

The ACCC report said average gross indicative retail differences in Australia’s five largest cities fell slightly for the second consecutive quarter, however, they still remain relatively high. In the March quarter, they were 15.8cpl – down 1.6cpl from the previous quarter.

Gross indicative retail differences are the difference between retail prices and terminal gate (or wholesale) prices, and are a broad indicator of gross retail margins. The ACCC says that because they include retail operating costs, they should not be interpreted as actual retail profits.

The federal government consumer watchdog said lower petrol demand from the effects of COVID-19 likely contributed to the high gross indicative retail differences in 2020, and this may have continued in the March quarter.

“There are some fixed costs involved in petrol retailing and businesses may have been setting retail prices higher than they otherwise would to offset lower sales volumes,” Sims said.

While fuel prices should fall slightly over the next three weeks, because oil prices continue to rise it’s likely the next time fuel price peak will be even higher than the one we’re experiencing now, according to a report by The New Daily.

That’s because Australia is a net importer of refined fuel, and about 41 per cent of bowser prices are tied to the price of global oil. The federal government’s fuel excise accounts for another 41 per cent, while the remaining 18 per cent comprises retail margins and other costs.

The existing OPEC agreement was put in place when the COVID-19 pandemic began last year, when demand was much lower than it is now. In turn, global oil production is struggling to keep up.

The price of imported fuel rose to its highest level in 18 months on Monday after key OPEC members Saudi Arabia and the United Arab Emirates failed to reach a new supply deal, increasing the benchmark Brent crude oil price to about $US77 ($A99).

Commonwealth Bank senior economist Ryan Felsman told TND the price could rise to $US80 ($A106) in the coming months unless a new deal is reached.

“There’s a tentative agreement whereby OPEC increases production by about 400,000 barrels per day from August,” said Felsman.

“[But] we’ve seen a breakdown in that accord. The UAE wants to change the quotas, [but] the Saudis disagree [and] they’re the biggest producer.”