PM announces national FuelWatch scheme

Submitted: Tuesday, Apr 15, 2008 at 22:42
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Many threads exist on Exploroz regarding the price of fuel and the abrupt price fluctuations that occur on a weekly basis.

I’ve argued that abrupt price fluctuations are not a bad thing because it means a healthy discount cycle exists. The price falls quickly as refiners offer pricing support to retailers, and the price rises quickly as that pricing support is withdrawn. This is often misinterpreted as “collusion” but many government initiated inquiries have highlighted this not to be the case. In fact, they have confirmed that motorists are better off as it enables fuel to be purchased at a discount on certain days, sometimes by up to 5/10 cents per litre than would normally have been paid in the absence of this discounting.

Tonight the government has announced that it is introducing a FuelWatch scheme. Motorists will know the price of petrol 24 hours before they fill up under a plan announced by Prime Minister Kevin Rudd. The FuelWatch scheme will force metropolitan and regional petrol stations to publicise their prices for the following 24 hour period at 2pm each day in a bid to give motorists more choice.

A 2007 report from the competition watchdog predicted the program could shave two cents a litre of the price of petrol. FuelWatch is already operating in Western Australia and will start nationally by December 15.

Unfortunately this may well prove to be to the detriment of the motoring public as it will potentially see the discounting cycle curtailed at best or removed at worst for little more than a 2 cent per litre across the board improvement.

A lack of understanding on how fuel is priced and how the discounting cycle works and benefits a large number of fuel consumers has lead to an outcry by voters to the government to do something about the abrupt price changes that occur. Governments of all persuasions have a knack of finding the response that best quells the disquiet, whether it truly solves the problem is academic at that point.

Those that have argued for the end to the abrupt pricing changes may well now get their wish, and an average annual fuel bill that is higher than it could be if you work the current discounting cycle and buy on the discounted days.

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Reply By: Dave B (NSW) - Tuesday, Apr 15, 2008 at 23:21

Tuesday, Apr 15, 2008 at 23:21
Where I live in regional NSW, the price fluctuates quite a bit.

It goes up for a while, then it goes up a bit more, then after a while it goes up a bit more.

We get disgruntled, not discounted.

Dave
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Follow Up By: OzTroopy - Tuesday, Apr 15, 2008 at 23:35

Tuesday, Apr 15, 2008 at 23:35
Dave B

Wait untill you have to use even more fuel, driving from town to town trying to find an available doctor, who will give you a prescription to buy a packet of panadol, every time you get a headache, worrying about the price of fuel.

The Landy

Like your posts - informative and logical.
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Reply By: Topcat (WA) - Tuesday, Apr 15, 2008 at 23:53

Tuesday, Apr 15, 2008 at 23:53
This system was introduced in W.A. a few years back & this is where Mr. Rudd got the idea of making it national. It hasn't really curtailed the price at the pumps (apart from a few independent operators) because the major outlets are in co-hoots with each other & fix the price anyway.
Typical example is long weekends & start of school holidays where at the end of the week the price goes up & in the middle of the week it may drop a couple of cents.
Overall if you wanted to save a few bob you may have to travel a distance to an independant operator thereby losing out because of the distance travelled for a cheaper price.
In the Perth suburban area since price fixing was introduced the cheapest to the dearest has only been a couple of cents average with nothing really spectacular in cheap prices. Cheers.
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Follow Up By: Richard Kovac - Wednesday, Apr 16, 2008 at 00:43

Wednesday, Apr 16, 2008 at 00:43
Sorry TC to spoil the WA thing but the eastern states had what we have now over 20 years ago before I escaped. Min price limit, 24 hr notice, you name it...

Cheers

RK
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Reply By: Cape York Connections - Wednesday, Apr 16, 2008 at 06:30

Wednesday, Apr 16, 2008 at 06:30
So now they going to advertise how much we are ripped off.


All the best
Eric
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Follow Up By: The Landy - Wednesday, Apr 16, 2008 at 09:12

Wednesday, Apr 16, 2008 at 09:12
Eric, I understand that people are peeved at the higher prices we are now paying for fuel, but that is not evidence that we are ripped off. Rapid price changes are not evidence we are being ripped off either despite common belief.

Oil is the problem, it is in high demand and this is not likely to change until new supply is brought on stream or OPEC and other oil producing nations start pumping more out of the ground. Bear in mind a weakening US dollar has also played a significant role in the increased price of oil.

This 'new' initiative that is going to be brought in will cost you in the long-run. Despite popular belief Australia has one of the most competitive retail fuel markets in the world. Under this new system the weekly discount cycle will most likely be curtailed or even removed.

How will we be better off if we don't have the opportunity to buy fuel at a discounted level that the weekly price cycle brings about?

Let's be clear, refineries are in the business of making a return for shareholders and those returns, on average over a 10 year period, are not extraordinary when compared to the capital investments they are required to make. Australian refineries are not efficient when compared to the larger plants overseas and are old by comparison. The risk is that they simply close shop and Australia will become totally reliant on imported petroleum products. At that point price won't be the debate it will be reliability and security of supply.

I've no beef with you here, but I'm concerned that it is comments such as yours that eventually leads to inappropriate responses from governments that will cost us all in the long-run - such as this new initiative will.

Cheers
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Follow Up By: Cape York Connections - Wednesday, Apr 16, 2008 at 10:07

Wednesday, Apr 16, 2008 at 10:07
They say there prices are based on singapore prices why dont we base our prices on say and arab country or say base it on our own prices.
If we base our price on the sigapore price do the bosses get payed the same as there mates in singapore.
I still cant work out if you buy a tanker of fuel from over there and transport it here it would take a few weeks to get here.
So while its on the boat its making money say they bought it at 100us and when it lands here is 114us not bad for having a rest in the boat.
If there is such a small profit in the price of fuel at the pump how can it go down on a tuesday 15c/L.
Imagine if a crocer shop prices fluctuated as much as fuel.
We are all getting sucked in and feed crap.

All the best
Eric
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Follow Up By: The Landy - Wednesday, Apr 16, 2008 at 12:52

Wednesday, Apr 16, 2008 at 12:52
Hi Eric

The question you raise about regional Singapore prices are well documented so I won't go into any more detail, other than to say it is in part about parity pricing. Why would companies producing oil in Australia sell it for any less than someone elsewhere in the world is willing to pay for it?

Your point about the value of the oil shipment in transit is a two-way street; the price could go down. In fact next time you fly over Kurnell in Sydney have a look down at the large oil storage capacity the Kurnell refinery has. The value of those oil inventories will be subjected to price fluctuations, both up and down, before it is refined into petroleum products and sent to the retailer. This is the risk that the owner of that oil is faced with.

The issue you raise about why it can go down (by 15 cents - or whatever it is) is the discounting cycle at work. Buy fuel on these days and you will be far better off. As to how and why they do it. Market share is one, and that isn't to say they are making a profit out of it when it is sold at heavily discounted prices. That is why the price support is only offered for a short period of time, once it is removed the price goes up.

But consider this; if I follow your argument, how it is that airlines can sell economy class seats on their aircraft for prices that vary from $100 to $400 a seat between Sydney and Melbourne, for example, when the cost of flying it between those points is fixed? Should we pay $100 for every seat or should we pay $400 for every seat. The airlines look at what yield they need to make the flight viable and make a profit and offer seats at varying prices to achieve this. That is to say some seats are discounted, some seats won't be. But this discounting offers the consumer the choice of a discount rather than one ‘flat’ rate for every seat. Some will be able to take advantage of it, some won’t.

Or what about Target, you know the Ads that appear on television almost every other week.Shop at Target tomorrow and receive a 20% discount on all (or most) goods. Again, your argument suggests that if they can do it one day, why don't they do it every day? They won’t because they wouldn't make a profit and would be out of business. But if you shop on those days you will benefit from the discount.

The point is simple, regardless of what you choose to believe despite the evidence that Australia has a competitive retail fuel market – if you remove the discount on anything from airlines to retailers to fuel retailers how are you better off for it?

You won't have the big price fluctuations once FuelWatch is brought in – this means you as a consumer will be paying a higher price everyday. You're in the tourism business and use fuel, no discount means average higher price over time! This development is not good for your business and that is the point I am making to you.
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Follow Up By: Cape York Connections - Wednesday, Apr 16, 2008 at 17:27

Wednesday, Apr 16, 2008 at 17:27
All that's fair enough but fuel is an essential item air travel isn't and neither is target.
.Have you got shares in a oil company, or are you the treasurer.

All the best
Eric
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Follow Up By: Dave B (NSW) - Wednesday, Apr 16, 2008 at 20:29

Wednesday, Apr 16, 2008 at 20:29
I just wonder about your argument about the price differences in airline seats and Target to achieve the desired bottom line Landy.

If you live more than 50 metres out of the metro area, you don't see much in the way of discount cycles.
They are virtually non existant in regional centres.

I wonder if fuel is cheaper in Birdsville or Coober Pedy on a Tuesday. I would be very surprised if it is.

Maybe next time I go on holidays, I will just camp from Wednesday until Monday, then fill up onTuesday.

How come Woolworths can have the same specials in their brochures all over the country from Perth to Cairns, and yet their country fuel is never anywhere near the city prices?

Dave
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Follow Up By: The Landy - Wednesday, Apr 16, 2008 at 21:53

Wednesday, Apr 16, 2008 at 21:53
Hi Eric

We can agree to disagree that Australia has one of the most competitive fuel retailing systems in the world...that is why you aren't paying over $2 a litre (yet), plenty are...

BTW, you can bag me for being a Queenslander, and you can have a go at me for owning a Landy, but geez don't call me Wayne Swan!

No shares in oil companies, but that might just be the best hedge you can have against the rising oil price buy comapies pumping oil out of the ground...seriously! But don't by refiners shares, there's no margin in refining fuel...

Cheers
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Reply By: Isuzumu - Wednesday, Apr 16, 2008 at 07:09

Wednesday, Apr 16, 2008 at 07:09
Guess what.....they are not going to bring it in until December. The Gov must think we are stupid they just don't won't to loose to much tax. You can not trust any of them and what was oil yesterday $114 a barrel what a joke.

Cheers Bruce
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Reply By: Ray - Wednesday, Apr 16, 2008 at 07:58

Wednesday, Apr 16, 2008 at 07:58
Its about time they gov. brought in retail price maintenance. The oil companies are ripping us off. If we are working on WPP shouldn't petrol and diesel prices both go up and down evenly and what about LPG prices? There is another rip off.
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Follow Up By: Michael ( Moss Vale NSW) - Wednesday, Apr 16, 2008 at 08:16

Wednesday, Apr 16, 2008 at 08:16
RAY!! Nothing will change... Its just another Rudd smoke and mirrors trick!! Michael
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Follow Up By: Truckster (Vic) - Wednesday, Apr 16, 2008 at 10:00

Wednesday, Apr 16, 2008 at 10:00
All it will do is drive prices up... instead of a few cheap days they will just up it and leave it there.. Whose going to stop them?
ACCC?

ACCC is to blame for letting Coles etc take control of fuel.. It was a mistake from the start, and I'll happily say "i told you so".

Only a blind man would believe this will work.
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Reply By: Willem - Wednesday, Apr 16, 2008 at 08:22

Wednesday, Apr 16, 2008 at 08:22
Everyone gets so hot under the collar about the oil companies ripping us off but what about the Federal Government and State Governments.

Fuel excise per litre is 38c
Then there is 10% GST on the final price of the litre.
There could also be another State tax hidden in there.

Take the taxes away and diesel could drop to around $1 litre.

But no, the Government is creaming the $$ and not putting it back into better or safer roads.

We just have to wear the fuel price or stay at home.


Cheers
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Follow Up By: Truckster (Vic) - Wednesday, Apr 16, 2008 at 10:01

Wednesday, Apr 16, 2008 at 10:01
well said.. and it isnt the oil companies in the first place - well in cities, its Coles and etc with their FUEL schemes of 4cpl off etc. but 10cpl on food to compensate.
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Reply By: Member - Cruiser (NSW) - Wednesday, Apr 16, 2008 at 10:02

Wednesday, Apr 16, 2008 at 10:02
I keep hearing about these so called "price cycles", but guess what, where I live that DOES NOT exist.

The prices do not go down on certain days and then go up on certain days, and it gets annoying to see all these reports on the news or current affairs programs saying this is how you can get cheaper fuel.

All of these statements are made by reporters or commentators who live in the city, where by the way, wages are higher than in regional areas.

I know, I choose to live in a regional area and have to accept that wages will be lower and prices for commodities like fuel will be higher, but the majority of the city dwellers forget about the regional dwellers when they are making these comments.

What I find amazing is that every service station in my area is exactly the same price EXCEPT the woollies and coles that are 5c per litre dearer than all the others, so the fuel docket system is a joke. How can they be $1.689 per litre when an independent across the road is $1.639 per litre and you don't need a docket.

These 2 companies have "educated" so many people into believing that these fuel dockets are saving them money. What a joke.

And don't tell me there is no collusion when all the servos in my area go up/down in price by exactly the same amount within 1 hr.

Anyway, that's my little rant for the day.

Cheers,

Cruiser
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Follow Up By: Truckster (Vic) - Wednesday, Apr 16, 2008 at 10:22

Wednesday, Apr 16, 2008 at 10:22
>>These 2 companies have "educated" so many people into believing that these fuel dockets are saving them money. What a joke.

Well put. And whats worse is when the fuel started rocketing, even the NRMA/RACV etc all supported and sprouked the USE THE 4CPL DOCKET$ TO SAVE MONEY when infact they dont.
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Follow Up By: Michael ( Moss Vale NSW) - Wednesday, Apr 16, 2008 at 13:34

Wednesday, Apr 16, 2008 at 13:34
Aldi say most people save 4 cents on about 55 litres on average, about $2.20 at Coles and woolworths with that stupid fuel docket. They say come to Aldi and save that amount on one or two items.. That kind of puts it into perspective doesn't it?? Michael
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Reply By: Truckster (Vic) - Wednesday, Apr 16, 2008 at 10:23

Wednesday, Apr 16, 2008 at 10:23
Heres something from todays paper that should sooth the blind


The ACCC will operate the scheme, which is expected to start by the end of the year and will give consumers information about the next day's petrol prices via text messages, email or website.

"What FuelWatch will do is give motorists much greater power," ACCC chairman Graeme Samuel told ABC Radio on Wednesday.



The ACCC will run it -
Greater powers - WHAT POWER DO THEY HAVE NOW? Name and shame? BIG DEAL
AnswerID: 298841

Reply By: Member - Footloose - Wednesday, Apr 16, 2008 at 10:44

Wednesday, Apr 16, 2008 at 10:44
I wonder what the overall effect on fuel prices might be if we nationized the fuel industry here ?
What about Brazil's ethanol experience?
Let's think outside the box. Perhaps it would be a disaster, there again....
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Follow Up By: The Landy - Wednesday, Apr 16, 2008 at 13:12

Wednesday, Apr 16, 2008 at 13:12
At a guess, foreign investment in Australia would dry up faster than Lake Eyre in summer; the Australian dollar would become the new peso of the South Pacific as foreign investors pulled their money out of the country (for fear of further nationalisation) and the end result is that the price of everything that is imported will go through the roof, including the price of oil and petroleum products.

Ethanol is not a long term solution; once you link the price of basic food items to the price of oil, and that is what you do in effect once you start growing crops for ethanol production, you risk farming resources being diverted from food production to ethanol production. This will see the price of basic food items become more expensive.

The last time sugar was at US 20 cents per pound was due to a surging oil price; do we want that sort of outcome? Mind you it isn’t limited to sugar, but includes other basic food staples.

The world is now inextricably linked to oil and petroleum products…….
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Follow Up By: Member - Footloose - Wednesday, Apr 16, 2008 at 13:30

Wednesday, Apr 16, 2008 at 13:30
Good points, however the prospect of Australia being held to random by petroleum producers is not what I'd expect from a forward looking Govt.
How much of the fuel taxes are being spent on renewable sources of energy, I wonder ?
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Follow Up By: The Landy - Wednesday, Apr 16, 2008 at 15:53

Wednesday, Apr 16, 2008 at 15:53
I’m glad we have found some common ground!

The point about Australia being held to ransom by petroleum producers is an interesting topic that isn’t considered fully, other than the usual banter about being ‘ripped off’.

But consider this; what happens if refining companies decide that the refining business in Australia is no longer viable due to the fine profit margins that can be achieved versus the capital investment in maintaining and upgrading the refineries? What if they decide that Asia is far more accommodating and closer to emerging markets and simply close the refinery doors in Australia?

This isn’t such a far fetched proposition once you consider the age and relatively small size of the refineries in Australia when compared to others around the globe. We’ve already seen evidence of this; the Port Stanvac refinery in Melbourne has been shut down and the Altona refinery operation has been scaled down because the costs to meet new fuel standards did not make it commercially viable to invest further in their operations.

Let’s not forget that Mitsubishi Australia has recently closed its doors solely based on economic considerations and with little regard for what it means to the local population. Foreign refining companies will be no different in their approach.

Now I’m not suggesting this will happen overnight, it may never happen, but if it did it means that we will become more and more dependent on imported petroleum products and this will bring with it other considerations far beyond the debate about price. What about security of supply; isn’t that a national security consideration? We may well be held to ‘ransom’ under these circumstances and we’ll be caught with our pants down around our ankles. As it stands forecasts suggest that up to 70% of Australia’s petroleum product will be imported within the next 15-20 years. This isn’t a long time given the lead time to build and bring refineries online.

Higher fuel costs are here to stay, and nobody has even considered what the cost of Australia meeting our carbon emission targets over the next few years will cost the industry and/or motoring public. This will run to billions of dollars; like it or not we all have a vested interest in Australian refineries ‘turning a fair profit’.

The future price of refined products will simply reflect the underlying price of the base input, oil. And remember, the price of oil isn’t linked to the cost of production, if it was it would be $5 a barrel tomorrow, it is all linked to demand and that demand grows every day.
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Reply By: Ray - Wednesday, Apr 16, 2008 at 11:08

Wednesday, Apr 16, 2008 at 11:08
The biggest rip off was with the last Federal Government when they introduced GST. I for one and many others like me expected to pay 10% GST on fuel but no the feds did not say that. They still imposed excise duty. So what is the difference between GTS and excise?????? They are both taxes even though they have fancy names
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Reply By: Motherhen - Wednesday, Apr 16, 2008 at 22:58

Wednesday, Apr 16, 2008 at 22:58
The fuel watch system enables you to choose the cheapest outlet in your suburb. This is better than having to drive past them all, use half a tank of fuel to find which has the bargain, go back and find his price has jumped again, because he can. The fuel watch way, you can look up the prices near you and choose, knowing they will stay the same all day. Much more power to the people.

Motherhen
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Follow Up By: The Landy - Thursday, Apr 17, 2008 at 11:46

Thursday, Apr 17, 2008 at 11:46
Your point is correct; you can determine in advance who has the cheapest on the day. The differentiation with my point is that in the absence of discounting you will in fact pay, over a period of time, a higher average price under FuelWatch. This will be despite buying it from the ‘cheapest’ on any given day.

The ACCC Chairman, Graeme Samuel, is on record as saying that motorists should not expect savings and that FuelWatch is not a process whereby consumers might be able to shave one or 1.5 cents a litre off their fuel costs. Even the government is on record as saying FuelWatch would not necessarily reduce petrol prices, but would at least eradicate sudden price rises, increase competition and ensure motorists were paying not a cent more than they should.

But the discounting system already ensures competition, those that have argued for the abrupt price changes to be eradicated have effectively argued for the removal of the discounting. How can you be better off if you end up with an average fuel bill higher than you have access to now?

One of the most significant comments has come straight from the chief executive of Woolworths, Michael Luscombe. He is on record as saying Western Australia, where the scheme has existed since 2001, was one of the company's most profitable states because of FuelWatch. He added that the company’s inability to match the lowest price in the marketplace in WA during the day has meant margins in WA were stronger than most if not all states.
I have great confidence in the following equation. (Government intervention + More regulation = Higher cost to everyone).
So the cost of the transparency and higher regulation that FuelWatch provides is an average higher fuel cost over time.
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