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Why Australian petrol prices are back on the rise

Petrol prices have dropped to below $1 recently, but recently they are back on the rise.

After so many weeks of laughably low petrol prices - driven by one of the very few upsides of the global Coronavirus crisis, a huge drop in the price of oil - it’s been a rude shock this past week to see the cost of a litre of unleaded skyrocketing again.

According to the Australian Institute of Petroleum, the average price of unleaded rose by 8.2 cents last week, which was the biggest increase in 13 weeks. After the joy of seeing prices below $1, the average was back up to $1.13 per litre on Monday.

The reasons for the fluctuation are something of a mystery, even to experts, but the good news is that it’s all part of a “cycle” that should see prices dropping below $1 again by next week. So, the best advice, if you live in one of our major cities, is to top up now, and fill up later.

According to the Institute, metropolitan prices rose by 9.9 cents a litre to $1.11, and the regional price increased by just 4.6 cents a litre to $1.10.

By contrast, the price of diesel fell by 0.6 of a cent, sticking at $1.19 for the week.

MotorMouth recorded average retail prices for unleaded fuel in capital cities of $1.12 for Sydney, $1.16 for Melbourne, $1.13 in Brisbane, or a far more reasonable 97.6 cents for Adelaide and 95.8 cents for Perth, with Canberra at $1.02, Darwin at $1.12 and Hobart at $1.21.

We always knew that petrol prices would go up again, but only recently experts had been predicting they would stay down for at least the rest of the year. One reason for that tip was that the tax on petrol is linked to the Consumer Price Index (CPI) and, with the economy in freefall, the CPI has been trending downwards.

The main factor effecting the global price of fuel at the bowser, however, has been the price of crude oil, which had been battered by a huge slump in demand. At one stage, the price of a barrel of crude fell into negative territory - oil companies were effectively at the point where they would have to pay people to store it, because they had too much on their hands and couldn’t sell it.

This week, however, US crude oil prices rose above $US30 a barrel for the first time in two months. Meanwhile, the Singapore benchmark gasoline price, which is the largest component of fuel prices paid by motorists in Australia, rose by just over 15 per cent to a nine-week high of $US33.80 a barrel.

BP CFO Brian Gilvray also announced that, while global oil demand had fallen by between 25 and 30 million barrels per day at the peak of the COVID-19 crisis, “we’ve now seen demand surge back” as motorists get back on the road and economies around the world begin to reopen.

According to the NRMA’s Peter Khoury, however, that shouldn’t affect Australia too much and that “cheap fuel should be around for a while yet”.

“It very much depends where you live in Australia, because we have these price cycles in Sydney, Brisbane, Melbourne and Adelaide, which are highly volatile, and which simply don’t exist outside of Australia,” Mr Khoury explains.

“Regional areas don’t have price cycles, either, nor is there one in Canberra, Hobart or Darwin.

“The downside of that is that Hobart and Darwin are always the most expensive, while Canberra was always up there too, but recently the ACT government threatened the service stations that if they didn’t start setting a fair price, they’d do it for them, through legislation, and their prices dropped 10c a litre, and stayed there.

“Perth, uniquely, has a seven-day cycle, which is because of laws they’ve got over there about when the price can be set, so every Tuesday is the cheapest day for fuel, and every Wednesday is the most expensive, and right now it’s 93c a litre there, which is pretty good.”

Trying to explain how and why the price cycles in our major centres happen is something akin to particle physics smashing into economics, and Mr Khoury says there’s no rhyme or reason to how long they last, “they can be 40 days, the last one lasted two months,” he said.

“Over the course of the virus, the falls were very slow, they didn’t go as low as they should have, either, because we only got down to 91c, in Sydney for example, when the retail price suggests it should have been down to 86c.

“Basically, the oil companies manipulate the price cycle, so the periods where the profits are going to be highest, they set the prices the highest as well. Then they slowly drop them back to the bottom again, to the point where the gap between the wholesale price and the retail price is only 1c or 2c a litre.

“And at the same time, you’ll see the smaller operators, the really cheap service stations, going below the wholesale price, to try to compete, and that’s why we have these massive gaps in places like Sydney.

“And there are always bargains to be had - the cheapest price in Sydney right now is 91c, the dearest is $1.20 a litre, and 12 per cent of service stations are under $1 in Sydney.”

The good news, Mr Khoury said, is that we’re at the point in the cycle where prices should start falling again, over the next week.

“We should get back below $1 in Sydney in the next couple of weeks,” he said. “There’s still an oversupply of oil globally, you’ve probably heard the stories of tankers sitting off the coast of the US full of oil, because there’s nowhere left to store it, so we will continue to see cheaper fuel for a while as that glut continues.

“What will change that is the economies opening up and then burning through those reserves, but cheaper petrol will be around for a while yet.

“Oil might be back up to $30 a barrel, but you’ve got to remember that not long ago it was at $80.”

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