Making Cents of Fuel: Understanding Australia's Fuel Market

08 October 2024

The price of fuel and the cost of running a car are at the top of the list of issues that affect motorists.

Petrol price fluctuations and discrepancies in major urban centres and regional towns can cause NRMA members frustration and confusion. When should I purchase fuel? Why is there a price difference between brands and locations? Why do regional town centres pay more? These are just some of the questions motorists and NRMA members grapple with every time they fill up.

The NRMA believes it is important that motorists understand how, and where Australian fuel is sourced, and how fuel prices are determined. This knowledge will enable a more informed and productive discussion about what is likely to happen to our fuel sources in the future.

How are fuel prices in Australia determined?

Fuel costs are predominantly determined by two factors – the price of crude oil, and fuel taxes (fuel excise and GST).

On average, these factors contribute about 83% of the total cost for regular unleaded and diesel, and approximately 78% for premium unleaded fuels. The remaining costs include, refining, wharfage, shipping, insurance, and wholesale and retail costs and margins.

Importantly the price of crude oil on world markets is quoted in $USD, meaning it is subject to foreign exchange rate volatility. The NRMA have produced a report that examines current price behaviour in the fuel market, including pricing cycles, growing price differentials for regular and premium fuels, and costs associated with facilitating petrol availability at the fuel pump.

  Read the report here 

Where does my fuel come from?

Many motorists may be unaware of the multiple steps involved in readying crude oil for use in vehicles. Crude oil is either shipped ready for consumption or refined in Australia prior to distribution.

For the 2023–2024 financial year Australia imported 81.4% of its crude oil from Malaysia, the United States, Vietnam and Brunei Darussalam.

 Australia also imported 41,048.3 ml of automotive gasoline and diesel fuel in 2023-24 with diesel representing 75% of total imports. Importation of automotive gasoline has risen 3.9 times and diesel has risen 3.5 times from 2010-11 levels. In addition, 97% of automotive gasoline and 92% of diesel in the Australian market is imported from Asia.

Understanding the fuel supply chain

The fuel supply chain can be split into three broad categories:

• Total supply: Sometimes known as the upstream petroleum industry - domestic and international crude oil exploration and extraction, international and domestic refining and imports of finished products, that is petrol and diesel.
• Wholesale: Delivery of the finished products into bulk fuel terminal storage. This is generally at major ports, waterfront import terminals, adjacent refinery terminals and other terminal handing sites. It includes storage terminals in regional locations.
• Retail: Purchasing of fuels from distributors attached to terminals for delivery to retail service stations.

Why is there a difference in fuel pricing?

Most motorists are aware that the price of fuel differs among retailers, but aren’t aware of the reasons behind these differences.

Most of the major oil retailers have higher average prices when compared with independent retail chains and non-aligned retailers. The majors include BP, Ampol, Coles Express, EG Group Woolworths and 7 Eleven, while the bigger independent chains include Metro Petroleum, Budget Petroleum, and Speedway.

Independent retailers tend to compete on finer margins in major capital cities and tend to have lower overhead costs than the larger major oil company retailers. Additionally the likes of Metro Petroleum, Budget Petroleum and Speedway are growing their presence, especially in south-west Sydney.

The fuel cycle

A petrol price cycle is a movement in retail price from a low point (or trough) to a high point (or peak) back to a low point. In these cycles, prices steadily go down for a period followed by a sharp increase. Price cycles are the result of the deliberate pricing policies of petrol retailers, and are not directly related to changes in wholesale costs including crude prices.

Understanding the price cycle and when to purchase fuel can be a point of frustration for motorists, particularly those in regional areas that may not experience the lows seen in metropolitan areas.

The duration of petrol price cycles in Sydney, Melbourne, Brisbane and Adelaide vary from cycle to cycle, and have increased in recent years. Over time, price cycle durations in these cities have ranged from a low of 11 days to a high of 68 days.

 Alternate fuel sources

Environmental concerns, governments, vehicle manufacturers and technology companies are rapidly moving the automotive industry towards an electric and automated future. As trends around the world point to increasing numbers of electric vehicles on our roads, jurisdictions are putting in place strategies to phase out petrol and diesel vehicles.

With lower running costs, better electric vehicle (EV) model supply and falling prices, EVs are becoming a more attractive proposition to consumers. This will obviously impact the fuel source required to power vehicles in the future. Indeed, the traditional petrol station may not be a place to purchase fuel but rather to recharge.

The NRMA released its ‘The Future is Electric’, report in November 2017, followed by ‘Recharging the Economy’ in 2018, asking all governments to provide a platform to make electric vehicles more appealing to the buying public in Australia.

Our support of EVs is based on the recognition that we need to transition to cleaner forms of mobility, which will help in curbing climate change and ensuring choice for Australian consumers.

Learn more

You can learn more about fuel in Australia, including it's origin sources, pricing cycles in metro and regional areas and the history of refining fuel in Australia in the NRMA's Making Cents of Fuel report.

  Read the report here