Talkingpoint

Petrol pricing 'MYTHBUSTERS'

MYTH 1: Petrol prices are quick to rise when world prices increase but slow to fall

FACT: Pump prices closely follow the price of petrol from Singapore refineries (not the crude oil price) with a lag of about one week. Marketing margins typically fall for a period when Singapore prices increase sharply. However, marketing margins increase for a period when Singapore prices fall sharply.

MYTH 2: Oil companies increase prices for public holidays

FACT: Petrol prices don’t jump because of public holidays, although this claim is made almost every holiday period. Normal weekly price cycles before holidays are often incorrectly claimed to be holiday price increases.

MYTH 3: Petrol prices all increase at the same time

FACT: Petrol prices don’t all increase at the same time and there is no collusion – but competitors watch each other closely and prices can change quickly after a week or more of discounting.

MYTH 4: Oil companies manipulate weekly price cycles to increase profits

FACT: Price cycles are the result of competition and provide opportunities to buy petrol at a discount, sometimes below cost. 55% of motorists buy petrol in the cheaper half of the week. About 60% of motorists take price into account when buying petrol. The Australian Competition and Consumer Commission
web site has information on when to buy.

MYTH 5: Supermarkets dominate the petrol industry

FACT: The petrol industry is not concentrated. The two supermarkets have a 44% share of the market. Four other major brands including Caltex have 49% and there are several more large chains. (Woolworths controls the board price at sites co-branded Caltex Woolworths.)

MYTH 6: Independent service stations are needed to ensure lower prices

FACT: Independents have a role in the market but supermarkets operate the largest number of service stations that are aggressive discounters.

MYTH 7: Country prices are higher than the city because of freight

FACT: The most important factor creating differences between country towns (and between city and country) is typically local competition, not freight. Sales volumes may also be lower, meaning higher costs per litre. Oil companies have little influence over country prices as most sites with major brands are run by independents.

MYTH 8: Price manipulation by greedy oil companies is the reason for high petrol prices

FACT: oil company profits on all fuels was only 1.0 cents per litre. Taxes and costs (mainly crude oil) make up most of the price of petrol. Caltex does not produce any crude oil but must buy it at world prices. Caltex’s financial results show an average profit across all fuels of only 2.2 cents per litre.

MYTH 9: Nobody knows how prices are set and the ACCC needs to investigate

FACT: Petrol prices are the most transparent of all market prices. There have been many inquiries and investigations by the ACCC and governments providing detailed information on pricing and showing the market is competitive. See Caltex submission to the 2007 ACCC inquiry.

Further information:

• www.caltex.com.au/pricing.asp
• www.aip.com.au
• www.accc.gov.au

 

 

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