Mobil Oil Australia Submission to ACCC Petrol Pricing Inquiry - July 2007

Mobil's submission to the current ACCC Petrol Pricing Inquiry emphasises that the Australian fuel market is highly competitive, and as a result, Australian motorists pay among the lowest prices in the developed world for petrol and diesel ". Full submission link

The Facts About Petrol Pricing in Australia

How are wholesale fuel prices established ?
Wholesale fuel prices are influenced by a range of external factors, including international crude oil and product prices, the Australian/United States dollar exchange rate and prevailing rates of taxation. Australian refiners, including Mobil, compete with refined product sourced primarily from the Asian region, with the Singapore market acting as a price benchmark for the Australian market.

Why do prices fall or rise by several cents in one day?
Competition in city petrol markets in Australia is among the most intense in the world. This intense competition gives rise to the frequent discounting cycles, as retailers seek to gain greater sales volumes and increase their market share. In order to protect their own market share, competitors will respond similarly. This process continues until prices reach unsustainably low levels, and the market then moves out of this discounting period. As a result of the intensely competitive environments at both wholesale and retail levels, Australians enjoy among the lowest petrol prices before tax in the developed world.

It is important to note that in the vast majority of cases, oil companies do not set the retail price - the service station operator sets the board price in response to their cost structure and the local market conditions.

Will prices go higher?
Petrol prices will continue to move up and down in response to both changes in international prices and the level of competitive retail activity in the local market. It is difficult to predict changes in prices in the future.

Do we pay too much for petrol?
Australians pay amongst the lowest petrol prices in the world. Consumers are getting a fair price, with petrol prices in Australia among the lowest in the OECD (even after tax) - and about half the prices in Europe. Discounting driven by retail competition, particularly in metropolitan areas, means that consumers have the opportunity to buy very cheap petrol on a regular basis.

Why is there a gap between country and city prices?
A lot of attention has been given to the variation between country and metropolitan petrol prices.

Differences in prices are often exaggerated by comparisons of the highest price in a particular town, with the lowest discount price to be found in the city.

The market in country areas is very different to metropolitan petrol markets. Country prices are generally higher and more stable than city prices, for the following reasons:

• Higher distribution costs to country areas. In some cases, product must be double-handled through bulk fuel depots;
• Lower volumes sold through country sites, resulting in higher per unit costs and therefore requiring higher margins to maintain site viability;
• Generally small local customer base and less passing traffic in country areas provides little or no incentive for country service stations to discount their product in order to increase market share;
• Little opportunity for shop sales and other sources of revenue to supplement fuel sales.

It is important to recognise that these different characteristics between city and country fuel markets will continue to underpin price differences.