But to get to the key issue in your “paradox”, the important thing to realise is that you cannot look at the ratio of price terms because this ignores the margin, which is largely independent of the wholesale price. For Australian petrol prices, the excise alone is a bit over 38c/L. To see why the margin makes a difference. Consider a hypothetical example in which the price of petrol was 50c/L plus the whole price of refined petroleum. Assume that the 50c/L margin (covering excise, transport costs, retailer profit, etc) does not change with the wholesale price. Now let’s say that the wholeale price is 100c/L but then it falls by 50% to 50c/L. In this scenario, the retail petrol price starts at 150c/L and then falls to 100c/L which is only a 33% fall! So here there is no profiteering, no manipulation of prices and yet the retail price does not fall as much as the wholesale price.

If you check http://www.aip.com.au/pricing/marketwatch.htm you will be able to follow the movements. There are other pages on the AIP site worth looking at as well.

As I said, I do not carry a flag for the oil companies, but I want the discussion to be open and transparent.

AND as I said, the Import Parity Pricing scheme sets a Terminal Gate Price based on Singapore prices of Unleaded Fuel and 50ppm Diesel converted to AUD, not directly on the USD price of crude.

So, your example skates over a few factors, one of which is the highly volatile exchange rate. The AU/US rate is now hovering around a disastrous 60c, having lost around 35% of it’s “value” since the peak you indicated. On normal trade flows, I estimate the AUD/USD rate should be in the 75-85c range.

Some in the news have estimated that bowser prices are overstated by around 3c/ltr. My rough estimate is in the 5-8c/ltr range. Both of these estimates are within the scope of “marketing support” or retail discounts, so my thinking is that the oil companies have simply stopped heavy discounting in metro areas.

We may not like it but we can at least keep a better eye on things personally than a government website can… :-)

Peak oil prie was USD$147 on the 11th of July.

Peak fuel price in Sydney was on the 10th of July at 173.9c/L

Can you please explain this paradox?

Back in July 08, @ 1AUD=0.98USD; one litre of petrol was AUD1.60 as an avg of Sydney prices (it peaked to 173.9cents/L for unleaded) one barrel of oil was USD$147

The ratio of cost of a barrel of oil to a litre of petrol in July 2008 was USD147/AUD1.6 or in AUD terms AUD$150/1.60 (exchange rate was 0.98US to the dollar) this ratio comes out to 93.75

therefore if you divide the cost of barrel of oil in AUD by this ratio, you should get the price of petrol at today’s rate?

therefore: $100/93.75 = $1.07

So someone please tell me why the $%#^%$# am i paying $1.42/L at the pumps today?!?!?!

I could be saving 35cents a litre which works out to about $20 per week in savings for me and the average vehicle, which I could be using to payoff my good time habits or mortgage as the case may be.

According to Australian Bureau of Statistics in 2003 there were 10.4 million registered vehicles in Australia. Say 11 million in 2008. 11,000,000 X $20 = $200 million per week. This is how much money we are paying the oil companies at the moment over and above the market rates which prevailed at the height of the oil boom in July 2008.

What a nice little earner. How much longer will it continue???

Petrol companies claim it is the weak aussie$ that makes it so if that was the case, the AUD would have to be less than 50cents US for this to be true.

I work in the retail end of the oil industry supplying industrial and commercial lubricants and greases.

There are many wild statements made in the press about the putative links between movements in crude oil prices and bowser prices for fuel, usually to attack the oil companies for “ripping off” us poor car owners.

Duncan’s question is quite pertinent but the timing goes (very) roughly like this:

1. Today’s media reports a spot price for forward delivery in approx 30 days, so
if a deal is struck today, the refinery feedstock price will apply in about a month’s time
2. It takes about 3 weeks roughly for feedstock prices to influence output prices through the refining process (please don’t open the tin of worms which is refinery cost accounting)
3. It takes about a week to ship refined fuel from Singapore to Australia
4. Allow a week or two for storage and distribution within Australia

Thus the comparison of crude prices reported in the press to bowser prices should involve a lag of roughly 8-9 weeks.

Therefore the prices we see at the bowser (or better yet the terminal gate prices) should be compared with the crude oil price of 8-9 weeks ago. For today 19th Sep that means crude prices ruling about late July.

Consequently, we are past the worst of the speculative peak, and should expect further drops in the bowser price to come – maybe a nice Chrissy present…

None of this reflects exchange rate movements, which most people forget, nor does it represent the actual mechanics of the Import Parity Pricing process, which may work off the Singapore Unleaded Price (MOPS95) and therefore reflect about a three weeks lag. Since I am way down at the tail end of the other side, I don’t know that part of the industry.

HTH

@Duncan: In 2007, The ACCC published a report on Australian Petrol Prices which included an analysis of Perth’s FuelWatch:

“This included an econometric analysis indicating some reduction in relative pricing margins between Perth and the eastern capitals in the time following FuelWatch’s introduction”

The econometric analysis was released in May 2008 and concluded:

“From the econometric analysis, on a conservative basis, the ACCC can say that there is no evidence that the introduction of Fuelwatch in Western Australia led to any increase in prices and it appears to have resulted in a small price decrease overall.”

This report also includes the fall in weekly average prices of 1.9 cents/litre which has been bandied about widely (e.g. here). However, the report itself notes that FuelWatch may not be the only factor at play. For example, they note “the entry of Coles into Perth was an event that may have had a price impact”

Overall, reading the ACCC documents these are fairly meek conclusions, and furthermore, a draft paper by a La Trobe econometrician discussed over on the Possum Pollytics blog suggests that there are weaknesses in the ACCC methodology. The paper argues that even their weak conclusions are hard to support using the price data.

Of course, if you are patient and persistent enough, you can harvest it yourself each day from, for example:
http://www.shell.com.au/petrolpricing_scuba/suburb.asp?state=NSW