Jun 192008

"Fuelwatch is about empowering the consumer. If there’s going to be a price hike tomorrow, you will know about it … and you will know where to buy petrol and how to avoid the price hike" – Graeme Samuel from this article in today’s Fin Review.

This is the same man who, when facing the Senate Inquiry into Petrol Pricing in Australia, openly derided the W.A. Fuelwatch scheme as likely to encourage plateauing of price cycles to a level higher than might otherwise be the case. We now know that following the Rudd government handing the ACCC a pair of second-hand choppers in a bid to have the body actually do something about petrol pricing, Samuel has remarkably changed his tune to one of avid support for the scheme.

The ACCC’s submission to the late 2006 inquiry is 136 pages long. Even skimming through it will reveal that no recommendations are contained within it regarding just how petrol pricing might be made more transparent, let alone cheaper for the consumer. It’s 136 pages of dry data, charts and graphs, mixed in with some slightly disturbing acknowledgement that the Howard Government’s de-regulation of the fuel markets in 1998 was the right thing to do. Right thing for whom isn’t clearly defined. Remember, this is the body which is supposed to be looking out for the consumer, not business and industry. That’s the ACCI. That body’s submission is as to be expected. Strongly supportive of business and industry and somewhat dismissive of opinions expressed that oil refiners and wholesalers might be ripping off the consumer. It does contain this acknowledgement though:

Petrol prices fluctuate on a weekly basis in most urban parts of Australia. The reasons for these fluctuations are discussed in more detail in a number of publications, including ACCC (2001) Reducing Fuel Price Variability. ACCI notes that these fluctuations do not necessarily indicate a market failure and do not necessarily harm consumers. In particular, some consumers are assisted by the price fluctuations because they are able to choose to purchase fuel when prices are lower. The ACCC supports this argument in its submission to this Inquiry.

All good pals, and jolly good company! I decided to have a gander at that ACCC 2001 report, just to see what might or might not be in it. In the summary section on price cycle variations, I noticed this:

The variation of price cycles (that is, the difference in price between the bottom and the top of the price cycle) has increased substantially in most major metropolitan cities over the past three years. The average size of the variations more than doubled in Sydney, Melbourne and Brisbane between the first half of 1998 and the first half of 2001. In Perth, this increase was more modest. This is likely to be due to the introduction of the 24-hour rule in Western Australia in January 2001, under which retail prices have to remain fixed for a 24-hour period.

The duration of price cycles (that is, the number of days between the bottom of one price cycle and the bottom of the next cycle) also increased in the five major metropolitan cities over the past three years. The largest increases were in Perth and Adelaide. In Perth, this is also likely to be a result of the new arrangements. While the 24-hour rule in Perth may have contributed to limiting the average variation of price cycles and increasing the average duration of price cycles in the first half of 2001, it may also have resulted in higher average prices. Analysis of prices in Perth since the introduction of the 24-rule shows that for the June and September 2001 quarters, average retail petrol prices in Perth have been higher than those in Sydney and Melbourne. In the previous two quarters Perth average retail petrol prices were lower than those in Sydney and Melbourne.

Furthermore, while the new arrangements appeared initially to decrease the average variation of price cycles in Perth and increase their average duration, data since the end of April 2001 suggests that there is now no material difference between the average variation and the average duration under the new arrangements compared with those under the previous arrangements.

To me, and I’m just your average, emotionally irrational motoring Australian, this tends to indicate that following de-regulation, oil refiners and wholesalers were faced with a brand new regime. Price cycling didn’t begin until de-regulation. Clearly, refiners and wholesalers saw an open door to higher profits and took it. There is no indication in pre-1998 data that refiners and wholesalers were crying poor or claiming disadvantage. All made profits. All satisfied shareholders. It was only following the Howard government’s opening of the paddock gate that that price variations doubled and price cycling began. The horse had bolted. It took the refiners and wholesalers a little while to get their shit together, but they have, which is why we now have a relatively uniform price cycling regime across the marketplace, which none of us truly understand, despite copious inquiries and lashings of gobbledygook, which none of us really believe.

Why do we have price cycling now, when prior to 1998 we actually had competition based on independents, large volume retailers and non-franchise stations competing by shaving margins or supplementing profits through mini-supermarket outlets – like 7 Eleven- incorporated with petrol retailing. Now you’re hard pressed to find an independent or a non-franchise station that isn’t owned by a major grocery retailer. Can I offer the term, ‘collusion’?

There are rationales offered for price cycling, which seem to centre on movements in the prices of TAPIS crude and Singapore Mogas 95 unleaded petrol. Strangely, not all refiners and wholesalers adopt the same modus operandi for monitoring these benchmarks or adjusting terminal gate prices within a cycle. Some will adopt a rolling seven day average, some a rolling five day average. Some incorporate a rolling average of the A$ movement, while some don’t. Some combine and evaluate both the crude and Mogas price, and some just the Mogas price. Some will opt to alter prices within the cycle twice weekly while others will alter bi-daily or daily. Anyone who pays attention to the price board at their local servo will realise that the price is never stable for 24 hours at time, and often changes up to three times daily. At the local Caltex outlet, I know they receive their orders across the computerised pump management system. ‘Increase unleaded/E10/Vortex to______(insert price)‘. It’s random, apparently, occurring anytime of day, or night.

So, why do I keep banging on about petrol pricing in this country? Why do I keep complaining about being ripped off? Why do I object to petrol being a political football? Because we’re not being told the truth, despite multiple fuel price inquiries; we are being ripped off because pricing has been deliberately made into a black art through obfuscation and general bullshit; and because governments have become reliant on the tax-payer’s desire, and industry’s need for road transport powered by fossil fuels. Yes, it’s clear that our modern society is enslaved to black gold and will be until it either runs out or is replaced by an adequate substitute. Is that any excuse for fleecing those who don’t have the political, economic or industrial clout to do without petroleum? I think not.