It can be difficult to understand just what your money is going towards when you visit a fuel station to fill up your car. You might be surprised to find out almost half of what you’re paying is covering taxes and expenses accrued by the fuel on its journey to the pump. This article will seek to explain just what these factors and processes are, and how much of an impact they have on the final retail price of petrol and diesel.
Although the refinement process for diesel and petrol is different, after the refinery they both go through the same stages in order to arrive at a final retail price.
To begin with, the price of diesel and petrol is based off of the international price. For Australia, the international benchmark is taken from the Singapore price of refined fuel, used because it is a market hub close to Australia and generally supplies the eastern hemisphere with fuel. From that point, the two products have different labels assigned to them, MOPS95 for petrol and Gasoil 10ppm sulphur, and these are the price benchmarks to which every expense is added.
In order to meet the demand for fuels in Australia, approximately 40% of our refined fuel is imported. This means the Singapore price benchmark is very important when calculating the retail price of fuels. At the time of this article’s writing the Singapore price of diesel is 51 cents per litre and the international price of petrol is 53.2 cents per litre.
Now knowing the international price of petrol and diesel, the next significant factor in their commercial price is government taxes. The cost of this excise tax depends on the country where the fuel is being imported. In the case of Australia the tax rate is fixed at 38.14 cents per litre for both diesel and petrol, plus the addition of the 10% GST at the end of the process. This is one of the lowest fuel taxes applied to any country of the Organisation for Economic Co-operation and Development.
When the Australian excise tax is added to the Singapore benchmark prices of diesel and petrol given earlier, the price of diesel and petrol grows from 51 and 53.2 cents to 90 and 92.2 cents respectively.
The next price increase comes from wholesale expenses, which generally refers to the expenses paid in importing and landing the fuel in Australia. It is difficult to calculate the exact price of these activities, but it involves a lot of situational costs, including the cost of insurance and loss, local wharf-age and terminal operating, administration, wholesale marketing and corporate taxes and government charges on wholesaling activities. The Australian Competition and Consumer Commission estimates it makes up 4- 6 cent per litre.
After the wholesale processes and costs are considered the retail costs must be too. These include the costs of road freight, admin and marketing, and service station running costs like wages, rent and utilities and a retail profit margin. Being a high volume, low margin sector, this profit margin is estimated to only be 1.3 cents per litre.
That completes the journey to the pump, and the price is final bar some local market competition and the 10% GST. All of this leaves the average retail price per litre of fuel, based on the Singapore benchmark, at $1.22 and $1.20 respectively. Whilst this price may fluctuate, the processes and expenses described in this article are consistently part of the formula used to calculate the final price of diesel and petrol.
– Connor Pound