Global oil prices have fallen, so why is it still so expensive at the pump?

Drivers could immediately see fuel costs dropping below $2 per liter, but diesel remains high despite falling prices for the crude oil used to produce both.

Analysis from FuelTrac shows that there is a growing gap between wholesale prices in Singapore and what you pay in retail. Specifically for diesel that means retailers are getting more per liter.

“The longer they hold their retail pump prices, as Singapore and wholesale prices fall, they increase their retail profit margins,” said Geoff Trotter, general manager of FuelTrac.

The line shows the relationship between retail margin – the amount a retailer earns – for unleaded gasoline (blue) and diesel (yellow) sold in Australia, above the ‘terminal gate price’ or wholesale cost.(provided)

Most of the fuel pumped in Australia comes from Singapore and the island’s terminal gate prices – wholesale fees – affect what you pay as a consumer when sold at service stations here. But the margin between Singapore prices and retail prices has skyrocketed in the past month, from under 10 cents per liter to nearly 35 cents per liter for diesel.

One explanation is that there is a lag – what you pay at the pump today is not tied to prices in Singapore yesterday. But the gap is generally only two weeks, and retail prices remain high even though prices in Singapore and globally have fallen.

Singapore’s President Halimah Yacob at a picnic at the Singapore Botanic Gardens. As Australia’s ability to refine petroleum products has diminished, we are increasingly dependent on the island nation for fuel.(Facebook: Halimah Yacob)

“Yes, two weeks should allow stock to move through the supply chain and we are seeing evidence of falling (unleaded) gasoline prices in some capital cities, such as Adelaide, Brisbane, Melbourne, Sydney and Perth, but not Darwin or Hobart. . At the same time, diesel (price) is stuck in almost all regions, in capital cities and regional cities.”

Retailer replied

But retailers argue that is not true and that a price drop will occur as supply moves through the system purchased at newer and lower prices.

This chart from the Australian Institute of Petroleum shows the difference between the average wholesale price paid by gas stations and the average retail price paid by motorists.

Even with fuel prices skyrocketing since the Russian Invasion of Ukraine, the margins made by retailers have not been consistent or very high. (Australian Petroleum Institute)

The blue line shows the ups and downs of the weekly move, but the long-term average remains around 15 cents per liter. (This data is for the price of gasoline, not diesel). It should be noted that ‘margin’ in the context of gasoline does not mean a clear profit for the workshop owner. There are costs to running each retail outlet including transportation, marketing, rent and wages.

Gasoline can go down

Last week the national average unleaded gasoline price fell 8 cents to 204.1 cents per liter, according to data from the Australian Institute of Petroleum.

If you like paying less on bowser, there’s more good news. Wholesale prices fell 17.5 cents per liter. If you convert to Australian dollars, prices in Singapore fell $25.66, or 13.7 percent last week, bringing it to a 20-week low of $161.52 per barrel or 101.58 cents per liter. Singapore prices have fallen 40 Aussie cents per liter in the last five weeks.

“The national average pump price is down by just 8 cents per liter, so savings are ahead for consumers and transportation companies,” CommSec chief economist Craig James said in a note to markets. “The key uncertainty is whether the price decline will be sustainable.”

“But (we) expect the national average price to fall from close to $2.04 per liter to close to $1.85 per liter.”

Diesel survives

Mr Trotter said retailers were holding back on diesel prices due to significant price declines from Singapore.

“Given that diesel represents about 20 billion liters per year and is a major fuel in road, rail, agricultural, mining and marine (industrial) transportation, it arguably has the greatest impact on price inflation as it makes up a significant percentage of all shipping in Australia”.

The gap between the decline in gasoline prices and the static for diesel leaves these consumers “very disadvantaged” as the retail price gap approaches 40 cents per liter.

Go around

No matter what you put in your tank, the price of fuel is still very different across the country. The price of the inleaded pump in Adelaide yesterday was close to $1.68 per liter. In Melbourne, gasoline sells for $2.13 per liter.

In March, the then government announced a temporary cut to fuel excise duty – 22 cents per liter for six months – and commissioned the Australian Competition and Consumer Commission (ACCC) to ensure it was passed on to consumers.

The watchdog, examining prices in the capital and nearly 200 regional locations, repeated that many factors influence what consumers pay: international prices, US exchange rates, and the cycle of gasoline prices in our largest capital city.

“When wholesale prices fall by a large amount over a short period of time, the lag between changes in wholesale prices and retail prices often has the effect of increasing gross retail margin (i.e. the difference between wholesale and retail prices) in the short term,” an ACCC spokesperson said in a statement.

“ACCC expects retailers to provide lower wholesale prices to motorists as soon as possible, and will continue to monitor the market closely.”

The temporary cut in fuel excise tax will not be extended.

Treasurer Jim Chalmers said assistance for motorists would cost $3 billion over six months.

“My hope, and the hope I would encourage people to have, is that we can’t continue that gasoline price drop forever,” he said.

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