Thursday, March 23, 2006
Fuel Prices Explained 1
There is a great deal of emotion and frustration regarding high fuel prices and the perception by the consumer that fuel outlets are manipulating the system.
The next few posts will help explain how fuel prices are derived and what you can do to get the best deal.
The first article is from Choice Magazine.
Petrol prices
Consumers are seeing large and rapid changes in crude oil prices, and wondering what it means at the petrol pump.
Petrol prices in Australia are set by the oil companies in line with the price of the refined product coming out of Singapore. The Singapore price was agreed on many years ago as a best indicator for refined petroleum products in our region.
There’s no direct link between the petrol price you pay and the cost of the crude oil used to make it, only this indirect link via Singapore. Consequently if Singapore prices are ‘up’ due to supply and demand in the region, you’ll pay more for your petrol — and the oil companies may make extra profits — even if crude oil is ‘down’. And the opposite applies, of course.
However, if you plot a typical crude oil price (adjusted into the Australian dollars we pay for it) against the petrol price without tax (tax is almost half of the price we pay), you’ll see that the local petrol price, on average, relates pretty well to the crude oil cost.
When the crude oil price goes down from US$50 to US$40 per barrel (159 L) that suggests the petrol price should go down 8 cents/L. And in due course it probably will. So do prices go up fast but down slowly? It always feels like that but it isn’t really the case.
Most of us probably tend to notice suddenly that the petrol price is going up sharply, without having noticed the oil price going up before that. Then with this heightened sensitivity we anxiously watch the crude oil price on TV every night, so that when it does start to decline we’re aware of the delay before the petrol price follows.
This is made even more confusing by the daily fluctuations in petrol prices and the disparities across cities and between cities and regions. You can really only compare average prices — the average for a week or even a month — which makes the relationship between petrol and oil all the more uncertain.
The overall margin — the value that wholesalers and retailers together take out of the price — is around 8 cents/L. If they get an extra margin of 0.5 or 1 cent/L from time to time it’s a big benefit to them. But it’s very hard to observe the market so closely that we can see whether at any particular time they’ve managed to stretch that margin out, or had it shrink on them due to some intense competition.
See also this link - Are consumers getting Screwed on Petrol?
The next few posts will help explain how fuel prices are derived and what you can do to get the best deal.
The first article is from Choice Magazine.
Petrol prices
Consumers are seeing large and rapid changes in crude oil prices, and wondering what it means at the petrol pump.
Petrol prices in Australia are set by the oil companies in line with the price of the refined product coming out of Singapore. The Singapore price was agreed on many years ago as a best indicator for refined petroleum products in our region.
There’s no direct link between the petrol price you pay and the cost of the crude oil used to make it, only this indirect link via Singapore. Consequently if Singapore prices are ‘up’ due to supply and demand in the region, you’ll pay more for your petrol — and the oil companies may make extra profits — even if crude oil is ‘down’. And the opposite applies, of course.
However, if you plot a typical crude oil price (adjusted into the Australian dollars we pay for it) against the petrol price without tax (tax is almost half of the price we pay), you’ll see that the local petrol price, on average, relates pretty well to the crude oil cost.
When the crude oil price goes down from US$50 to US$40 per barrel (159 L) that suggests the petrol price should go down 8 cents/L. And in due course it probably will. So do prices go up fast but down slowly? It always feels like that but it isn’t really the case.
Most of us probably tend to notice suddenly that the petrol price is going up sharply, without having noticed the oil price going up before that. Then with this heightened sensitivity we anxiously watch the crude oil price on TV every night, so that when it does start to decline we’re aware of the delay before the petrol price follows.
This is made even more confusing by the daily fluctuations in petrol prices and the disparities across cities and between cities and regions. You can really only compare average prices — the average for a week or even a month — which makes the relationship between petrol and oil all the more uncertain.
The overall margin — the value that wholesalers and retailers together take out of the price — is around 8 cents/L. If they get an extra margin of 0.5 or 1 cent/L from time to time it’s a big benefit to them. But it’s very hard to observe the market so closely that we can see whether at any particular time they’ve managed to stretch that margin out, or had it shrink on them due to some intense competition.
See also this link - Are consumers getting Screwed on Petrol?
# posted by Scratchie @ 3/23/2006 01:34:00 am 
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