Need to know
- A recent ACCC report says petrol retailers have been too slow to pass on the savings, especially in state capitals.
- Petrol stations are free to charge as much as they want, which is why motorists should take charge and refuse to pay too much.
- CHOICE reviews fuel apps – must-have tools for drivers looking to pay a fair price and drive fairness in the petrol sector.
Motorists have a right to feel ripped off when it seems they're paying too much at the petrol pump – especially when they probably are.
That's truer than ever in the midst of the COVID-19 crisis, when instances of what looks a lot like price-gouging are not hard to come by.
And with oil cheaper on the international market than it's been in a long time, motorists understandably expect a corresponding drop in petrol prices.
For the most part, that's happened in recent weeks. But prices haven't dropped as fast – or as consistently – as they should have.
The international price of oil has fallen by about $50 a barrel since the beginning of the year. The cost of petrol in Australia's five largest cities (Sydney, Melbourne, Brisbane, Adelaide and Perth) fell by about 45 cents a litre over the same time period.
With price drops of this magnitude, who's complaining? If you look closer, it turns out we all should.
Petrol should be even cheaper
A report released by the ACCC on 22 April makes the case that Australians were still being overcharged at the bowser long after the fall in oil prices filtered through the local petrol industry – especially if they lived in Hobart, Canberra, Darwin or many regional areas around the country.
In many cases, the overcharging may have been subtle. Five cents a litre more, for instance, may not seem like a lot until you analyse the $333 million in net profits Australian retailers made on petrol products in 2017–18 (the most recent period covered by the ACCC report).
In the larger Australian capital cities, petrol retailers took too long to pass on the savings from the rapid drop in international oil prices, and this did not reflect well on themACCC Chairman Rod Sims
It was a record high, but it works out to an average profit margin of just three cents a litre (although that's almost double the average from 2008–09 to 2013–14 of 1.6 cents a litre)
So five cents a litre is a lot when you have the economies of scale that Woolworths, Coles, BP, Caltex, and 7-Eleven can bring to bear.
"In the larger Australian capital cities, petrol retailers took too long to pass on the savings from the rapid drop in international oil prices, and this did not reflect well on them," ACCC Chairman Rod Sims said when the report was released.
"Especially at this difficult time, retailers must not take advantage of the situation to increase their profits, but should pass on savings to motorists."
A number of motorists who have contacted CHOICE in recent weeks feel the same way. "Amazing, in Brisbane petrol has gone from $1.12 to $1.58 overnight, despite the cost of fuel going down," one recently told us.
"Petrol prices are all over the place," said another. "I was looking at a fuel app. Lots of places advertised around $1.50 or as low as 80c. Not sure if it's price gouging or just normal."
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Oil prices have fallen dramatically in recent weeks, but petrol retailers in Australia have been slow to pass along the savings.
ACCC's expanded role in the petrol sector
The federal Treasury added a special project to the ACCC's portfolio in December 2019: Keep an eye on retail petrol prices and report on the sector's profitability.
(It was really an update to the ACCC's ongoing role in monitoring the petrol sector. The agency has previously released a number of major reports that cover the sector going back to 2008.)
The 22 April report was the agency's first under this revised direction. Along with making the case that petrol retailers have been overcharging customers during the COVID-19 crisis, the report shows that Australia's petrol retailers are making more money than ever.
We have previously found that the lack of vigorous and effective competition in some regional locations was a major reason for higher prices in those locations. Where there is competition, you tend to see lower prices.ACCC spokesperson
In the retail sector, net profits across fuel, convenience store and non-fuel services were $616 million in 2017–18 (again, the most recent period analysed). Total industry net profits (including wholesalers, refiners and other players) for petrol products were $1.44 billion in 2017–18, or 4.2 cents a litre – the highest recorded by the ACCC. That's about double the profits for petrol products in 2013–14 ($723 million, or two cents a litre).
Charging too much for petrol is not new
This is hardly the first time the ACCC has taken petrol retailers to task for charging too much.
A number of previous reports make the same accusation, especially with respect to regional Australia, where there is far less competition among petrol retailers.
"We have previously found that the lack of vigorous and effective competition in some regional locations was a major reason for higher prices in those locations," an ACCC spokesperson told CHOICE. "Where there is competition, you tend to see lower prices."
But it's important to understand that the ACCC doesn't set petrol or any other prices. Retailers are free to charge as much as they want.
"The ACCC can't control the petrol prices companies set, but we can call out problematic price setting, which can influence company behaviour," the spokesperson said.
It's only when businesses act together to deliberately restrain competition – through price fixing or other cartel-like behaviour, for example – that it becomes illegal. (Price fixing just means retailers agree not to compete, so they can all charge a higher price.)
The petrol industry is more profitable than ever in Australia, from refineries on down to retailers.
ACCC encourages motorists to use apps
Sims has said the ACCC would welcome any evidence of anti-competitive behaviour in the petrol sector. Over the years, it has launched a number of legal actions for petrol price gouging. The findings of its latest report, then, are more an ethical than a legal criticism.
It regularly calls out sectors of the economy that it determines are not giving consumers a fair deal. The onus is then on consumers – us – to take matters into our own hands.
In a September 2017 speech to the Asia Pacific Fuel Industry Forum, Sims said: "the current focus of the ACCC is to highlight to consumers the ability of technology to help them find where the cheapest petrol prices are, to encourage them to buy where petrol is cheapest, and to reward retailers which have the lowest prices".
The current focus of the ACCC is to highlight to consumers the ability of technology to help them find where the cheapest petrol prices are, to encourage them to buy where petrol is cheapest, and to reward retailers which have the lowest prices.ACCC Chairman Rod Sims
Sims reiterated this point with the release of the April report: "Giving your business to outlets that are pricing competitively sends a strong message to those that have high prices that they will lose your business," he said.
"We recommend motorists compare prices on fuel price apps and websites, such as MotorMouth and the government schemes in NSW, WA and the NT, which also provide information on retail prices in regional locations. Especially at this difficult time, retailers must not take advantage of the situation to increase their profits, but should pass on savings to motorists."
AAA: 'committed to affordable motoring'
The General Manager of the Australian Automobile Association (AAA), Michael Bradley, says his organisation seconds the ACCC's view that consumers should be in the driver's seat, shaping market forces.
"Along with our state clubs, the AAA is committed to affordable motoring, which is why we support apps and websites that inform motorists of what the price fuel is at different locations," Bradley tells CHOICE.
"This isn't only key to basic consumer protection, but it's also key to consumer empowerment. As a general rule, having access to more information doesn't only lead to more competition and often cheaper prices, but it also flushes out and exposes rogue operators."
Fuel pricing cycles and structures differ from state to state, Bradley says, which is why pricing tools are best developed and deployed at a state and territory level "to take into consideration the needs of motorists and nuances of fuel markets in each jurisdiction".
As a general rule, having access to more information doesn't only lead to more competition and often cheaper prices, but it also flushes out and exposes rogue operators.AAA General Manager Michael Bradley
Petrol apps are critical, but Bradley says the AAA would also like to see petrol pricing transparency taken a step further by having fuel dockets display the amount of excise tax the federal government collects for each litre of petrol and diesel sold, which is currently 42.3 cents a litre. This approach would follow the same transparency principal as grocery dockets displaying the amount the federal government takes in GST.
Meanwhile, the AAA welcomes the ACCC's new role in petrol pricing.
"This has been an important step towards ensuring transparency in fuel prices at a time when people are more concerned than ever before about their household budgets," Bradley says.
"As a result, we now have a detailed fact-based analysis that can be used by state or federal jurisdictions going forward to look at the effectiveness of competition and fair trading policies across Australia when it comes to fuel prices."
Which are the best fuel price apps?
We agree that motorists should take matters into their own hands to stop petrol retailers overcharging, which is why we've reviewed petrol apps.
- Premium fuels accounted for 60% of the industry's profits in the most recent analysis, but only a third of sales.
- Premium fuel prices have risen significantly more year on year than regular fuel prices.
- Profits for 95 and 98 grade premium fuels were 5.8 and 5.9 cents a litre, respectively, compared with 1.5 cents a litre for regular unleaded.
- 37% of petrol retailer profits came from convenience store and other non-fuel sales in 2017–18.
- The average Australian household spends 13.8% of its income on transport costs. Car loan repayments and fuel are the biggest expenses.