Petrol retailers asked to explain why motorists are being ripped off

The competition regulator, the Australian Competition and Consumer Commission (ACCC) has asked Australia’s major petrol retailers to explain why motorists are still being charged so much, despite oil prices plunging by 70% in the past 18 months.

The Brent Crude oil price has dropped from above US$100 a barrel in 2014, to just above US$32 a barrel currently and 11-year lows, thanks to a massive global oversupply.

The ACCC says prices have decreased in its latest quarterly report to the end of December 2015, but prices are not as low as expected. Chairman Rod Sims said, “The decrease in prices over the quarter was welcome news for motorists“, (at an average of 124.4 cents per litre across the five largest cities).

As the following chart shows, despite crude oil prices at the same level as in 2004-05, Australians are still paying more for their petrol.

petrol price graph

Source: ACCC

Mr Sims also noted that motorists are not fully benefitting from low crude oil prices and that the difference between crude oil prices and international refined petrol prices (the refiner margin) in 2015 was high. He also added that these refiner margins are outside Australian control, but stated that higher gross retail margins in Australia were also a factor in higher petrol prices.

Free instant petrol price information

The ACCC took court action against five petrol retailers and petrol price information exchange service Informed Sources last year, which was resolved in December 2015. As a result, Informed Sources will make petrol price information available free for consumers on a near real-time basis at the same time as the retailers.

The five retailers were 7-Eleven, BP, Caltex Australia Limited (ASX: CTX), Woolworths Limited (ASX: WOW) and Coles – owned by Wesfarmers Ltd (ASX: WES).

Tax and refiner’s margin

However, the action by the ACCC may still not resolve the issue of Australians paying too much for their petrol. For one, Australians are still paying nearly 50 cents a litre in tax, and secondly, as previously stated, we have no control over the refiner’s margins – which the ACCC estimates are double their long-term averages.

As we’ve previously reported, Caltex expects to report a record full-year profit this financial year (FY15) – which includes $400 million in earnings before interest and tax (EBIT) from its Lytton refinery, compared to $218 million in 2014 and just $134 million for the first half of 2015. Caltex also says its refiner margin is around US$16 per barrel. If that’s not a part explanation of why we are still paying more for petrol than we should, I don’t know what is.

Foolish takeaway

There’s no doubt petrol prices are falling, but it still seems as though we are being ripped off. The Australian Institute of Petroleum says around 20% of our petrol is imported, mostly from Singapore – but if 80% of our petrol is produced in Australia why are our petrol prices based on Singapore fuel prices?

Discover the 'new breed' of blue chips that could take your portfolio higher in 2016

Forget BHP and Woolworths. These 3 "new breed" top blue chips for 2016 pay fully franked dividends and offer the very real prospect of significant capital appreciation. Click here to learn more.

The report is free! No credit card required.

Motley Fool writer/analyst Mike King owns shares in Woolworths. You can follow Mike on Twitter @TMFKinga

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.