Petrol Prices Explained

Establishing the price of petrol is no simple matter and it is not one that can be summed up in simple one-line statements. 

Western Australia's domestic petrol prices are subject to an array of factors including overall world supply and demand capacities for crude oil and petrol, freight rates and competition at world, regional and domestic market levels. Although there is a strong correlation between a change in the price of crude oil and the price of fuel it is not the only factor.

 As part of its price monitoring role, FuelWatch checks a range of factors every day that can affect fuel prices.

Singapore Benchmark

Central to the price of petrol in Australia is the price petrol is selling for overseas.  Successive Commonwealth Governments since 1977 have adopted an import parity pricing policy to determine national pricing levels for all motor fuels.  This means the domestic price for petrol in Australia is linked to international petrol prices to ensure local refiners will not sell their offshore to obtain higher prices (and potentially leave no fuel for the local market).

Under Australia's import parity policy, Singapore is used as the price benchmark for most fuel because of its proximity and because it is the largest refining centre in the region. The LPG benchmark is set in Saudi Arabia, Australia’s largest source of imported LPG. This price is used as a basis for LPG sales internationally.

The Singapore benchmark can be impacted by supply and demand issues, such as the general availability of petrol on the world market.

Crude Oil

The purchase cost of crude oil is a significant factor in the production of fuel, but it must be emphasised that crude oil price is not the only factor.

Crude oil is the raw material for petrol and other fuel products and, in order to achieve its transformation into these products, it must go through a complex refining process. As a result, crude oil prices influence Singapore refined product prices - Australia's fuel benchmark.

As Malaysia's Tapis crude oil is the common feedstock for refiners in the Singapore region, it is the most valuable crude oil reference for Australians to follow.

Market decisions by oil producers to cut or increase oil output can also ultimately impact supply and demand of oil and hence the price of crude oil.  The Organization of Petroleum Exporting Countries (OPEC) is the largest international world oil producing cartel and the world fuel industry hangs on its decisions to cut or increase oil output.

Supply and demand issues on the world market also impact crude oil prices.  For example, the weather can influence the price of crude oil. Traditionally there is a much higher demand for oil for heating during the Northern Hemisphere's winter.

The Australian Dollar

The exchange rate of the Australian dollar also impacts on the price of fuel because the United States dollar is used for most transactions. When the Australian dollar is valued at a high rate against the American currency, this positively impacts the price of petrol in Australia, leading to lower prices.  The reverse is also true when the exchange rate falls and local petrol prices rise.

The Price Cycle

The cyclical movements of petrol prices, known as the price cycle, is very frustrating to motorists.    The price cycle is a marketing strategy used by petrol companies and is usually only seen in capital cities.  

Other Influences

The retail price of fuel is made up of the wholesale price, freight and wharfage costs, excise, GST and retailers’ profit margin.  A change in any of these will inevitably affect the price motorists’ pay at the bowser.

A Commonwealth Government excise of 38.143cpl is applied to all fuels on the retail market except LPG. 

The Commonwealth Government has announced that an excise will apply to LPG. It will commence from 1 July 2011 and will increase annually at a rate of 2.5 cpl increasing to 12.5cpl by July 2015.

The GST component is calculated at 10% of the cost of the fuel, while the retail margin encompasses retailers' profit margin as well as their operating costs.

LPG Prices

Our local LPG prices, like ULP, are based on international prices using a principle known as "Import Parity Pricing”. The benchmark used by local LPG producers to set their prices is known as the "Saudi Aramco Contract Price". This price is used as a basis for LPG sales internationally and changes on a monthly basis.

Generally, when the contract price increases, local LPG prices will also increase. Likewise, as the contract price falls, local prices will also start to come down.

To help motorists get a better understanding of what drives LPG prices, we publish this contract price on our website. 

Figures for the contract price can be sourced from LPG Australia.