Why is petrol so expensive in Australia? And when will petrol costs go down?

Australian drivers are paying eye-watering prices for fuel, with the price of petrol passing $2 a litre.

That’s even after the fuel excise was halved in March, to 22 cents a litre, in a federal government move aimed at reducing the pressure on motorists.

So will fuel prices drop in Australia? And is there a best day to buy petrol?

Why is petrol so expensive in Australia right now?

Australian fuel prices follow world prices, explains economics professor John Freebairn, from the University of Melbourne.

He notes that world prices have increased as a result of global economic conditions, Russia’s war in Ukraine, and Australia’s dollar exchange rate.

Russia is one of the world’s largest oil suppliers, and global oil supply chains have been heavily disrupted as a result of the war. Australia’s reliance on fuel imports means it’s vulnerable to volatile international fuel markets.

Believe it or not, official statistics from the Bureau of Resource & Energy Economics and the International Energy Agency show Australia has among the lowest petrol and diesel prices of all 38 OECD countries.

Australia ranked sixth cheapest.

Australian petrol prices are cheaper than the Netherlands, Finland, Israel and Denmark, but more expensive than Canada, Chile, Costa Rica, the United States and Turkey.

Didn’t the government cut the fuel excise? 

Yes, after petrol prices increased to a 14-year high in March, the former federal government reduced the fuel excise — a tax you and I pay every time we fill up — from 44 cents per litre to 22 cents per litre.

But the reduced rate is due to expire in September.

The Australian Competition and Consumer Commission (ACCC) monitors Australia’s petrol prices.

It found that in the weeks following the March 30 cut, daily average petrol prices fell by at least 39 cents per litre (cpl) in Sydney, Melbourne, Brisbane, Perth and Adelaide.

Over the same period, in Canberra, Hobart and Darwin prices fell by between 25 and 48 cents per litre.

“We can see from our petrol market monitoring that the cut to the fuel excise has been passed on to Australian motorists in the vast majority of locations,” ACCC chair Gina Cass-Gottlieb said.

“Retail petrol prices will still fluctuate with changes in international prices and the price cycles in the largest capital cities, even though the excise cut has flowed through to the bowser.”

The national average price for fuel on March 29, just before the excise tax cut was implemented, was 188.3 cpl.

Last week’s average was 195.3 cpl, according to AIP data.

What is the fuel price cycle?

The price most motorists pay for petrol changes every day.

Australia’s five largest cities, Sydney, Melbourne, Brisbane, Adelaide and Perth, are each subject to these price cycles.

While price cycles are a longstanding feature of retail petrol prices in major cities, the ACCC notes price cycles do not occur in smaller capital cities or in most regional locations.

This table, from ACCC, shows the price cycles per quarter in the five largest cities. 

The table shows Sydney, Melbourne and Brisbane each had three price cycles in the March quarter. Adelaide had five price cycles.

How frequent are petrol price cycles?

• The average duration of price cycles in Sydney — the movement in retail price from trough to a peak to a subsequent low point — was around six weeks over the year to March 2022
• In Melbourne and Brisbane the cycles lasted around five weeks, and in Adelaide around two weeks
• The table shows Perth had the most price cycles over the year to March
• Price cycles had been occurring on a weekly basis since 2011 in Perth, although from October 2021 they changed to occur each fortnight

Price cycles are the result of pricing decisions made by petrol retailers aiming to maximise profits, and they only occur at the retail level. Wholesale prices don’t show similar cyclical movements.

What is the best day to buy petrol?

For most drivers, there is no real “best” day or time to fill up, says economics professor David P Byrne from the University of Melbourne.

“This is because the large infrequent price jumps happen roughly at monthly frequencies, but the main ‘price jump days’ happen on different days of the week.”

He does suggest using apps and the ACCC petrol site to figuring out when to buy petrol to “game the cycle”.

“The apps make it easier to see when there’s a price jump at a few stations,” Professor Byrne said.

Professor Byrne suggests apps like:

• Petrol Spy
• Fuel Check
• Fuel Watch

“Stations run by major retailers like BP, Ampol, Woolworths and Coles tend to lead the price jump parts of the cycle,” he said.

When will petrol prices go down?

It’s hard to say.

“I unfortunately don’t have a crystal ball, but we can expect high petrol prices for as long as the war in Ukraine is going on,” Professor Byrne said.

“My guess is that we’re in for high petrol prices for the remainder of 2022 and likely well into 2023.”

How can I save petrol?

There are a number of ways. A phenomenon known as “hypermiling” has seen motorists turn off their air conditioners and keep their feet off the accelerator in a bid to get more “juice” out of each tank of fuel.

“Hypermiling” techniques involve: 

• Keeping up to date with your car’s service schedule
• Checking tyre pressure 
• Losing excess weight in the car — taking stuff out of your boot, for example
• Driving as slowly as reasonable in the highest possible gear without over-working the engine
• Driving smoothly, with no harsh accelerating or braking
• Coasting as much as possible, reading the road to know what’s happening ahead
• Keeping air conditioner use to a minimum