Average petrol prices in the June quarter 2020, says the ACCC, fell to their lowest level in 21 years in real inflation adjusted terms as a result of the Covid-19 pandemic. Gross retail margins, however, remain at record highs.
The ACCC’s latest petrol monitoring report shows that the average retail price for petrol in the June quarter across Sydney, Melbourne, Brisbane, Adelaide and Perth was 109.0 cents per litre (cpl), a decrease of 28.8 cpl from the March quarter 2020.
Gross retail margins in the five largest cities remained high in the June quarter, and annual average gross retail margins in 2019-20 increased to the highest level since the ACCC began calculating them in 2002.
According to the ACCC, gross indicative retail differences (GIRDs) are the difference between retail prices and terminal gate prices and are a broad indicator of gross retail margins. As GIRDs do not account for retail operating costs, says the ACCC, they should not be interpreted as actual retail profits. ACCC analysis, however, has found that increasing GIRDs in recent years are a result of increases in both operating costs and profit margins.
Across the five largest cities, annual average GIRDs in 2019-20 were 14.7 cpl, 2.7 cpl higher than last year’s average. Brisbane had the highest annual average GIRDs at 16.8 cpl and Perth had the lowest at 12.3 cpl.
The level of prices, costs and profits vary significantly between retail operations, says the ACCC, and not all retail petrol sites will be achieving these gross margins.
“Many Australian motorists benefited from lower petrol prices over the first half of this year, but we have some concerns about the higher gross margins that petrol retailers seem to be holding on to,” says ACCC Chair Rod Sims.
Covid-19’s impact on petrol demand
The ACCC’s report shows the Covid-19 pandemic’s hit to economic activity has decreased demand for petrol, and sales volumes were 27% lower in the June quarter 2020 compared with the same period last year.
“There are some fixed costs involved in petrol retailing and it’s likely that businesses have increased gross retail margins, to some degree, to offset lower sales volumes,” says Mr Sims.
“While less petrol being sold during Covid-19 restrictions may be a contributing factor to the record high gross retail margins, we’re not convinced that this fully explains the levels we’re seeing.
“Owning and operating a car is a major expense at the best of times, let along during the current economic crisis, and Australian drivers want to see lower global oil prices passed on to them in a timely manner.”
Fuel price transparency schemes
There was positive news for motorists in South Australia and Tasmania, says the ACCC, when their state governments announced that they will introduce fuel price transparency schemes.
“The ACCC has long supported fuel price transparency schemes, as real-time price information helps motorists find the best deals on offer,” says Mr Sims.
“We want consumers buying from petrol stations with the cheapest fuel as it rewards the price-competitive retailers.
“Fuel price transparency schemes are particularly relevant to motorists in the larger capital cities as the petrol cycles see prices fluctuate day-to-day.”
Price movements
A collapse in global crude oil prices earlier this year led to historic low retail petrol prices in late April across Australia’s five largest cities, explains the ACCC, but prices then increased and finished the June quarter at an average of 119.3 cpl.
The 28.8 cpl fall in the average retail price of petrol from the March to June quarter 2020 was driven by a 22.3 cpl drop in the price of Mogas 95, which is said to be the benchmark for refined petrol in the Asia-Pacific region.
Due to much lower Mogas 95 prices, says the ACCC, the June quarter 2020 was the first time in four years that taxes, which includes excise and the GST, made up a larger proportion of the total retail price of petrol than the refined petrol itself.
Across the 2019-20 financial year, Mogas 95 and taxes together accounted for 81% of the price of petrol, four percentage points lower than last year. This saw the wholesale and retail costs and margins component of petrol increase to 19% in 2019-20.
“Mogas prices are influenced by global crude oil prices, and as well as concerns about the Covid-19 pandemic it was the breakdown in talks between the OPEC cartel and other major oil producing nations in March 2020 that caused oil prices to collapse,” says Mr Sims.
“Lower crude oil prices are one of the few positives from current world events and drivers in Australia have enjoyed lower petrol prices on the back of it.”
Beyond the largest cities
In the June quarter 2020, average prices across the locations in regional Australia monitored by the ACCC were 116.5 cpl. This was 7.5 cpl higher than the average in the five largest cities and 0.8 cpl higher than the March 2020 quarter.
The city-country divide has narrowed year-on-year, says the ACCC, and in 2019-20 the annual average gap between regional prices and prices in the five largest cities was 4.0 cpl, which is 2.5 cpl lower than last year.
The differential between retail petrol prices in the three smaller capital cities (Canberra, Hobart and Darwin) and the five largest cities increased to 10.2 cpl in the June quarter 2020, up from 7.6 cpl in the March quarter.
