What’s driving up fuel prices?

Ross Greenwood speaks to Geoff Trotter, from Fueltrac, about fuel prices and why you’re paying more for petrol at the bowser.

Introduction: What is driving up Fuel Prices?

Ross Greenwood:  Welcome back to morning news right around Australia. Well, if you are in this evening, Brisbane, you may be seeing petrol prices as you drive home above $1.50 a litre. In Sydney, I saw them today certainly at $1.49 a litre, and I’m talking only for the the basic unleaded or the ethene, if you take that. If you’re in Canberra this evening, around $1 44.5, which certainly has jumped 10 cents or more over the last day or so.

Now, the interesting side is there have been very big jumps, big big jumps in both Sydney and Brisbane pretty much in the last four or five days. That is, the cyclical change that always comes after a period of downward prices which lasted this time nearly two and a half weeks, I guess. Now if you throw your mind out, you’ll see that the next up-cycle is probably going to be right in the middle of next month. Guess when that is, just before Christmas, you bet.

As a result, you’re going to find that even Melbourne prices which are still at their lows are about to jump and they will follow suit in regards to where Brisbane and Sydney certainly are. Why has this happened? Well partly, oil prices are up but really, oil prices, for these increases that we’ve seen? From the last peak that we saw, in prices in Sydney and Brisbane– Well in Brisbane, that’s about $1.41. We’re talking more than 10 cents a litre more from the last peak period. Let’s get Geoff Trotter who was with Fueltrac, who’s on the line now. Many thanks for your time Geoff.

Interview with: Geoff Troffer, Fueltrac

Geoff Trotter: Good evening Ross.

Ross Greenwood:  Do you think this can be justified by those people who love marketing and selling petrol in Australia?

Geoff Trotter: No, not at all Ross. You’ve talked about over those two peaks. The underlying wholesale movement related to the oil price is about a five centimetre increase and that’s to reflect the prices that we you use, the Brent crude market when to go up to about 64, but it’s dropped back down to 61 today. There is a lag effect but what they’ve effectively done and they do it deliberately, whenever there’s a movement up in the wholesale price, they’ll always add a few extra cents.

You’ll see that over this year, the peak prices have moved from the order of $1.32, 34, 36, 38 and now we get up to $1.50. The underlying wholesale price, if you’re buying off-the-shelf terminal gate price in Brisbane, you pay a $!.21 today. They’re making 30 cents a litre profit on the retail margin, they’re also pocketing seven cents a litre wholesale margin, and they’re also pocketing six cents a litre refiner margin. The gross margin available in Brisbane today at $1 50.9 is 40 cents a litre.

Those are the numbers that we used to read about all the time in Darwin, but we’re talking Sydney and Brisbane, these were supposed to be competitive markets that these oil companies —

Ross Greenwood:  What happened then Geoff because that’s the interesting thing, there used to be competitive marketplaces, there were independents out there that would actually say that these margins are pretty good, so they dropped their prices knowing that they could sell more petrol as a result get a decent term. What happened here?

Geoff Trotter: Specifically in the Brisbane market, most of the independents have been bought out by either overseas trading companies, by the likes of Puma Energy or Mitsui and so on. What’s happened is that, those fragmented independents are now aggregated under these huge multinational companies.

Ross Greenwood:  In other words, we used to think of them as independents but what you’re saying is that they are now big multinational companies in their own right and those multinationals haven’t really got that much incentive or shall I say appetite to compete with the majors.

Geoff Trotter: Well Ross, most of these multinationals have come into Australia and have paid $800 million to acquire these independents. Do you think the numbers stack up under the old model which was cheap and cheerful? No, they’ve bought themselves into the market, they’ve now got to get a return on their $800 million, whatever the number is, and so their model has changed, it now reflects the same model that oil companies that majors operate under.

Ross Greenwood:  Some of these companies also have bought big tank farms. In other words, they’ve got the ability to get their timing right to bring the fuel in from overseas because much of it is imported these days of course and so as a result, they can make a turn by the trading of that fuel on those commodity exchanges as well.

Geoff Trotter: It’s not only those large storage tanks in the depots and terminals, think about your service station that could have two or 300,000 litres on the ground but often, even if it’s only 100,000. You think about it, if they’ve bought that fuel when the price was down at $1.20 or 1.30, what do you think the incentive is to follow the majors up to $1.50? They pick up 30 centilitre stock profit before they even sell a litre of it. Of course, they’re incentivized to follow the majors, and when I talk about the majors let’s be clear, I’m talking about Shell Coles Express and Caltex Woolworths, they invariably lead the price up and these independents are incentivized in terms of stock profits and margin to follow them. You’ll get this very rapid increase in the price and you get a very very slow decline.

Ross Greenwood:  You get a very big profit margin for those people who hold the fuel at that time. Geoff Trotter Fueltrac, he’s always been on the case with this but do bear in mind, when those independents were bought out right around Australia that it didn’t necessarily lead to better outcomes or more competition with the majors. In some cases as Geoff said, they had to actually have less competition and more profit margin to justify the high prices that they’d paid in the first place.

Geoff Trotter always great to have you in the program, appreciate it very much.

Geoff Trotter: Thanks Ross.

 

 

Interview with: Geoff Trotter, Fueltrac

 

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