Factors that set the price of fuel
It’s likely you haven’t given much thought to the fuel you pump into your car, beyond how much it costs per litre. But did you know there are a wide range of factors that influence the price of fuel, ranging from production costs, to transport and taxes, and even marketing and geopolitical factors?
To help you better understand what determines the price of fuel – and how to find significant savings as a result – we’ve laid out the steps below that deliver fuel to the forecourt.
It’s also worth downloading the My NRMA app which can help you find the best deal on fuel in your area and benefit from savings of up to 13c per litre at Ampol Foodary.
Crude prices
Before petrol can flow from the pump at the fuel station, it has to be refined from crude oil. Crude oil is a naturally occurring, unrefined petroleum product composed of hydrocarbon deposits and other organic materials.
Crude oil is an internationally traded commodity and part of the reason fuel prices are so volatile is that regular fluctuations in global crude oil prices directly impact the base cost of fuel. This mostly comes down to supply and demand. If global demand for crude oil is high, prices will go up. If demand drops, like it did during the Covid 19 pandemic, the price will drop.
These ‘international benchmark prices’ for fuel have the largest impact on what you pay at the pump here in Australia. It takes around two weeks for global price shifts to be felt at the pump in Australian cities and even longer in regional areas.
The benchmark price of refined petrol in the Asia Pacific region is known as the Singaporean MOGAS 95 and it is bought and sold in US dollars. Changes in the value of the Australian dollar relative to USD, therefore, can also impact fuel prices.
In the first quarter of 2024, average MOGAS 95 prices accounted for 49 per cent of the cost of fuel across Australia’s five largest cities.
Fuel transport costs
Australia doesn’t have large fuel reserves so the vast majority of our crude oil is imported, with Malaysia being a primary provider. Once petrol is refined from crude oil, it is transported from refineries to distribution terminals and then to retail outlets. In Australia, this involves shipping, pipelines, and trucking.
Transportation costs are influenced by factors such as distance, fuel prices, and logistical considerations. Generally, petrol prices tend to be higher the further the fuel must travel to reach the pump.
These greater transport distances, plus less competition from retailers, helps to explain why fuel is often more expensive in country areas.
Fuel Excise
The Australian government imposes a fixed excise on petrol and diesel, which is indexed twice a year to the Consumer Price Index (CPI). As of 2024, the excise rate is approximately 50 cents per litre.
This tax is a significant component of the retail price of fuel and is justified by using the money to help fund infrastructure projects and other government expenditures.
Wholesale GST
In addition to the fuel excise, the Goods and Services Tax (GST) is applied at a rate of 10% on the final retail price of petrol. This means that GST is calculated not only on the base price of the fuel but also on the excise component, effectively taxing the tax.
The GST contributes to the overall cost paid by consumers at the pump.
Retail Markup
The retail markup covers the operating costs and profit margins of service stations. This includes expenses such as wages, rent, utilities, and other overheads associated with running a retail fuel outlet. T
he level of competition in a given area can influence the retail markup, with higher competition often leading to lower margins. Retail prices in capital and larger cities typically follow a discounting cycle, influenced by local competition and consumer behavior.
Understanding these components can help you decide on the best time to fill up.
How can I save money on fuel?
As well as macro factors like the international cost of crude oil, the local fuel price cycle also impacts the price of fuel in Australia. This cycle is largely influenced by competition between retailers who attempt to beat each other on price.
This fuel cycle can vary across different suburbs in Australia’s capital cities and also coincides with school holidays and public holidays, as retailers look to increase their margins over popular periods on our roads. Again, the principles of supply and demand apply.
To help track your local petrol cycle, download the My NRMA app which provides valuable information on the best time to fill up. NRMA members can also benefit from fuel discounts of up to 13 cents per litre.
Keeping your car well maintained through regular servicing and ensuring your tyre pressures are set correctly can also help improve fuel economy, which will save you money at the bowser.
Making Cents of Fuel
The price of fuel and the cost of running a car are at the top of the list of issues that affect motorists. 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.
