Diesel Fuel prices

Submitted: Wednesday, Sep 26, 2007 at 13:25
ThreadID: 50044 Views:5261 Replies:8 FollowUps:8
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Further to the discussion yesterday.

Was $1.43 when I filled up in Victor Harbor about a week ago. Was about 20c per litre dearer than ULP - that's what really gives us all a pain in the hip pocket, because it almost negates the fuel economy of a diesel in litres/100km terms.

The story put about is that because retail buyers of diesel are only a small minority (10% I think) there is not the same competitive pressure which causes the discounting cycle with petrol. That may well be true so maybe we diesel users ought to get active!!!!

Looking at the tables in the EO Fuel Prices section, it is evident that most of the data is supplied by Shell, which is the only oil company to do so. Seems that very little data is contributed by EO readers. The first thing we could ALL do is go around some of the servo's in our local areas every day or two then post the prices on the EO Fuel price page. The next thing we can do is conscientiously buy our diesel at the cheapest sites anywhere there is a choice.

There's not a lot of point in blaming the government - the taxes on diesel are about the same as petrol. And fuel prices in Australia are among the lowest in the OECD countries. Look at this graph Site Link . Thank our lucky stars we aren't in the UK or Turkey!

I think the real issue is the terminal gate prices prices are too high, which means the oil company margins on diesel would be pretty good. That's because no one is pressuring the oil companies in regard to diesel prices. Who can blame them charging all the market will stand if we all just meekly pay up.

If all the diesel users in the country, both commercial and private started squealing and protesting, and actively seeking the cheapest prices, and telling the oil companies what we are doing at every opportunity then maybe some competition would start creeping into the diesel market.

There really ought to be at least parity with petrol prices. There seem to be quite a few more smaller diesel sedans coming on the market now, and if the relative price of diesel came down that could turn into a flood, thus fuelling more demand for diesel, more competition, more pumps at every service station, and so on and so on.

Maybe we should start a "diesel users coalition" and really agitate for some change. Question is, would diesel users be prepared to pay, say, $50 per vehicle per year to support such a campaign? Will be very interested to see the response to this!

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Reply By: spudseamus - Wednesday, Sep 26, 2007 at 13:31

Wednesday, Sep 26, 2007 at 13:31
$1.23 in Shepparton with a 6c fuel docket
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Reply By: Alan H (Narangba QLD) - Wednesday, Sep 26, 2007 at 13:49

Wednesday, Sep 26, 2007 at 13:49
The "problem" with diesel is not the quantity but who is buying it.

There is plenty of diesel sold in Australia but as stated, the majority goes to non-retail to mines, trucks buses, tour companies etc who pass the cost onto their customers.

They also are able to have tax gains as it is a business purchase. There is less incentive for any of these groups to complain about the price as it is all passed on to customers who won't get a decrease when fuel price dips.

Philip S is correct in that a push to get diesel as the standard fuel for private cars as is happening in Europe would help considerably.

Bottom line - fuel is a totally inelastic supply in a country the size of Australia. They can ask whatever price and we have to pay as there is no alternative. Only political pressure against exploitation and govt incentives for alternative fuels will really have any effect on price.

Also notice that profits of fuel companies is not going down but ever increasing like good capitalistic multinationals.
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Follow Up By: Patrol22 - Wednesday, Sep 26, 2007 at 18:39

Wednesday, Sep 26, 2007 at 18:39
...and they also get a rebate of around 20cpl from the Federal Govt
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Reply By: Bware (Tweed Valley) - Wednesday, Sep 26, 2007 at 14:13

Wednesday, Sep 26, 2007 at 14:13
You raise some good points there, Philip.


I have heard that NSW towns near the Qld border get a subsidy to compete with Qld's lower prices. That's great for me. I haven't filled up this week, but diesel at the local independent in Murwillumbah has been around the $1.23 mark for a while.

In regards to the discounting cycle; It goes up and down, but at it's highest it is still cheaper than diesel?

I too watch the EO fuel price section and find it interesting. Considering it is all Shell (except for a couple of entries), how come the discrepancy in so many locations? I presumed that the further it needs to be carted the more expensive but some locations don't fit that.

How about Boggabilla? It's in NSW, a few k's down the road from Goondiwindi in Qld. It has a population of less than 700 (that's not a typo!) and it's Shell diesel is ALWAYS the cheapest of all Shell diesel in the state! It's always cheaper than the same listing for ULP. At first I thought it must be near a major Qld town; Goondiwindi pop. 5000. Maybe it's proximity to the Qld border? Diesel in Boggabilla is cheaper thanGoondiwindi. Today: Boggabilla- $1.269Goondiwindi- $1.339 . The nearest NSW town is Moree (I think); 95km away- $1.400. I would be a very happy fella if someone can explain how that works.



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Follow Up By: Bware (Tweed Valley) - Wednesday, Sep 26, 2007 at 14:23

Wednesday, Sep 26, 2007 at 14:23
Correction; Moree- $1.385.
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Follow Up By: The Landy - Wednesday, Sep 26, 2007 at 14:48

Wednesday, Sep 26, 2007 at 14:48
There is a subsidy scheme in place in Northern NSW.

The government pays a subsidy for petroleum products in five different zones within the state extending south from the Queensland border. The scheme was introduced to ensure sellers of eligible products are able to compete fairly with Queensland re-sellers whose on-road fuel is subsidised by the Queensland Government.

Distributors who receive subsidy payments and service stations that are entitled to purchase subsidised fuel are required by law to pass on the subsidy.

Boggabilla is in zone 1which gives it a subsidy of both 8.35 cents per litre for both petrol and on-road diesel use. This is the maximum any zone receives and matches the Queensland Fuel Subsidy Scheme rate (8.354 cents per litre).

Moree is in zone 3 and only receives a 5.01 cent per litre subsidy.
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Follow Up By: Bware (Tweed Valley) - Wednesday, Sep 26, 2007 at 15:27

Wednesday, Sep 26, 2007 at 15:27
Why does Shell tell it's Boggabilla outlet to sell 7c cheaper than it's Goondiwindi outlet?

So Tweed Heads must be in zone 1 - $1.339 ?

Hastings Point - 26km from the border - $1.369

Glenn Innes - about 100km from the border - $1.369

Berry - between Kiama and Nowra - $1.369

Wisemans Ferry - Northwest of Sydney - $1.369
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Follow Up By: The Landy - Wednesday, Sep 26, 2007 at 15:38

Wednesday, Sep 26, 2007 at 15:38
The Office of State Revenue website details the zones and towns within them, Tweed Heads is in zone two.

I'm not sure why prices for fuel would be different between the places mentioned other than to say that it is probably marketing discounts at work, similar to all around the country.

That (marketing discounts) and freight are the only variable in fuel pricing as it is all priced using the same methodology, import parity pricing based on Singapore pricing.

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Follow Up By: Bware (Tweed Valley) - Wednesday, Sep 26, 2007 at 16:17

Wednesday, Sep 26, 2007 at 16:17
Landy, I appreciate your input. The trouble is every answer (not just yours) begs more questions.

Take the situation in which two different fuel outlets that are side by side have the same price for diesel. 4km up the road are two more outlets (the same brand as the first two) whose prices are the same as each other but 2c/4c/10c cheaper/dearer than the first two. How come they're the same price? Does one wait for the other to advertise it's price then make theirs the same? Why? Either one company follows exactly what the other's price is or there is collusion (it can't be coincidence that they are always the same price). Assuming it's not collusion, one company waits for the other to publish it's prices. So the one that is nominating the prices first decides that it will sell at x price and that it will sell at y price up the road and then the other company does exactly the same? True competition would make one try to offer cheaper but we see this everywhere. They compete by being exactly the same yet are 4c dearer up the road but exactly the same as each other again. How do they arrive at the same price next door to each other? Why is it 4c cheaper up the road? If a company can offer it 4c cheaper up the road, why wouldn't it offer it at that price down the road to compete with the outlet next door?
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Reply By: The Landy - Wednesday, Sep 26, 2007 at 14:16

Wednesday, Sep 26, 2007 at 14:16
The reality is that the amount of diesel consumed in Australia by retail customers is nominal in terms of overall demand, both locally and overseas.

Most of the refineries in Australia are old and not as effiicient by world standards and the major refiners would probably be happy to quit this market tomorrow. Bearing in mind there is already a trend towards imported product versus refining here.

I suspect the oil companies could take it or leave it in terms of supply of diesel to private users and therefore whilst your idea sounds good in principal it is unlikely to lead anywhere.....not a defeatist attitude, just the hard cold reality.

Not until there is something closer to a 50/50 split between diesel and petrol vehicles will you see the same discounting cycle for diesel that we currently see with petrol.
AnswerID: 264028

Follow Up By: Member - Philip S (SA) - Wednesday, Sep 26, 2007 at 15:57

Wednesday, Sep 26, 2007 at 15:57
I know what you mean. But it is a bit Catch 22 isnt it - we won't see the discounting cycle in diesel until there are a lot more diesel cars on the road, but there wont be a lot more diesel cars on the road unless the relative price of diesel comes down!

I wonder if anyone has done any ams length research on oil company margins on sale of diesel. I suspect their margins are pretty high on diesel. Maybe the ACCC should look at it.

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Reply By: al - Wednesday, Sep 26, 2007 at 16:54

Wednesday, Sep 26, 2007 at 16:54
hi guys
i was in mt. isa last week diesel was $1.14 at two sights go figure that one

al
AnswerID: 264037

Reply By: Member - Kim M (VIC) - Wednesday, Sep 26, 2007 at 17:27

Wednesday, Sep 26, 2007 at 17:27
Philip

All I can say is good luck mate!

Many before you have tried, including Government and lobbying groups without success.

Having been in the petroleum industry (Shell) for many years and privy to their marketing strategies (which constantly change over time) there are a couple of things you need to be aware of.

Larger commercial users of diesel, such as mining and transport receive significant rebates based on volume, capital investment and location.

Their usage is far greater than the combined demand from "domestic" customers. Therefore, what is given away in one hand, must be made up elsewhere. I won't go into refinery issues or parity pricing because it's too complicated.

From the refinery gate to the distributor or reseller, there is an additional transport cost added to the fuel, based on distance travelled. However, things get a bit more complicated than that.

In most regional and remote areas the reseller won't sell anything like the volume of his metropolitan counterpart and may have to rely on a margin of $0.09c per Litre, whereas the latter attempts to survive on $0.02 per Litre (for example).

In Outback areas there is a relatively short tourism season. To remain viable the operator is forced to charge what some may perceive to be an inflated price. However, if he doesn't do that, he'll go broke and won't be there to service you next year.

Hope this helps

Regards

Kim
AnswerID: 264043

Follow Up By: Member - Philip S (SA) - Wednesday, Sep 26, 2007 at 17:50

Wednesday, Sep 26, 2007 at 17:50
Kim

I hear what you say about large commecial users etc, and those are the facts of life I guess.

On prices in remote locations, I (and probably many others) don't have a particular problem with the price of fuel being high in such places. Most other commodities are dearer too.

What really gets up most peoples noses is the huge disparity between petrol and diesel most of the time in metropolitan areas and nearby. eg I am 75 minutes from Adelaide but the differential at present is over 20c per litre.

As you were in the industry, what do you know about the relative gross margins for oil companies ( not the resellers) for petrol and for diesel?

Cheers

Phil



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Reply By: Member - Kim M (VIC) - Wednesday, Sep 26, 2007 at 18:27

Wednesday, Sep 26, 2007 at 18:27
Phil

You ask a very complex question. I've been out of the industry for a number of years and things change very quickly. If I was to have a wild stab at the reason, I'd put it down to the resource boom, which would have a huge increase in volume at the expense of margins.

There are also seasonal reasons for the fluctuation in price. For example, heavy winter heating demands in Europe and the USA will significantly effect petroleum pricing in such a small market as Australia.

On a micro level, such as suburban pricing, it's very much a local competitive issue.

What are the current margins between the two products?...... would'nt have a clue!

Regards

Kim
AnswerID: 264051

Reply By: Patrol22 - Wednesday, Sep 26, 2007 at 18:55

Wednesday, Sep 26, 2007 at 18:55
Recently did a trip up north and just for interest sake here are the dates I filled up, where and the cpl cost; (diesel)

5/8/07 Coomamble 138.9
7/8/07 Roma 129.6
10/8/07 Emerald 122.4
12/8/07 Emerald 127.5
13/8/07 Charters Towers 129.0
14/8/07 Mount Garnet 133.9
16/8/07 Cooktown 135.9
24/8/07 Cairns 124.9
27/8/07 Townsville 126.9
29/8/07 Agnes Waters 125.9
2/9/07 Hervey Bay 116.5
7/9/07 Beaudesert 126.9
11/9/07 Port Macquarie 138.9
11/9/07 Mittagong 140.9
23/9/07 Canberra (end trip) 138.9

You will note that Hervey Bay was significantly cheaper but I'm blowed if'n I know why.
AnswerID: 264054

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