What drives petrol prices?

Most of us have no idea what drives petrol prices or why petrol is more expensive on some days more often than others during the week. Lately there doesn’t seem to be any pattern at all. Let’s look at some basics…

Raw material, processing costs and tax make up the majority of the price. The rest is distribution costs and retail profit. Short-term changes in prices are caused by local competition between retailers whilst longer-term trends are driven mostly by raw material costs.

Our petrol taxes are relatively low compared to other OECD countries – only USA, Canada and Mexico are lower. Many governments have used taxes to raise revenue and force improvements in fuel efficiency.

Australia buys its excess crude oil requirements in US dollars through the Singapore wholesale market. Changes in the A$-US$ exchange rate will impact fuel prices as will worldwide changes in supply and demand. Political unrest in countries that supply oil to the world can also be blamed for price spikes.

Daily fluctuations in price are caused by retailers discounting to attract customers. Independent operators actually don’t make much money from selling petrol – milk, bread, newspapers, cigarettes and so on are what keep them going.

There are things you can do to reduce your spending on petrol:

  • Take advantage of the fuel discounting cycles and buy when you see the price lower;
  • Correctly inflated tyres will improve your fuel efficiency;
  • Air conditioning can add up to 20% to fuel consumption – only use it when necessary;
  • Steady driving uses less fuel than racing and braking.

To find the best prices if you live in a capital city look up www.motormouth.com.au.

For more information on fuel pricing, check the Australian Institute of Petroleum website at www.aip.com.au.

When prices fall, it’s easy to get complacent. Good habits and a bit of planning can save you money regardless of the price of petrol.

Sources: www.aip.com.au; www.fuelwatch.com.au; www.motormouth.com.au

General Advice Disclaimer

This article contains general advice only, which has been prepared without taking into account the objectives, financial situation or needs of any person. You should, therefore, consider the appropriateness of the information in light of your own objectives, financial situation or needs and read all relevant Product Disclosure Statements before acting on the information. Whilst every care has been taken to ensure the accuracy of the material, Paradigm Strategic Planning or Sentry Advice Pty Ltd will not bear responsibility or liability for any action taken by any person, persons or organisation on the purported basis of information contained herein. Without limiting the generality of the foregoing, no person, persons or organisation should invest monies or take action on reliance of the material contained herein but instead should satisfy themselves independently of the appropriateness of such action.

Paradigm Strategic Planning Pty Ltd is an Authorised Representative of Sentry Advice Pty Ltd AFSL 227748

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