The global crude oil price has finally dropped, so why is petrol still so expensive in Australia? Things should be back to normal now, but instead, Big Gas continues to rip us off and deepen our already chasmic cost of living crisis.
In early 2022, the price of crude oil shot up to a seven-year high amid fears Russia’s oil production could stop because of its invasion of Ukraine. In Australia, with our dollar weak at the time, petrol prices broke records to the point where the former Coalition Federal Government stepped in to halve the fuel excise and help ease the pressure on the public.
But 13 months after Russia’s invasion of Ukraine, the crude oil price has recovered and dropped to its December 2021 level. Back then, a litre of unleaded in Australia would set you back no more than $1.50 at the petrol station. But today it’s still around $1.80.
So what’s going on – and why is it capitalism’s fault?
The big story behind this is a phenomenon called “rockets and feathers pricing,” according to University of Melbourne economics professor, David Byrne.
When wholesale costs go up, prices at the bowser rise like rockets. When the wholesale prices go down, they fall like feathers.
“This is actually very common in many industries but it’s really salient in petrol,” he told VICE.
“You’ll see the price increase come through way faster than the decrease.”
Yep – that’s just the world we live in.
Byrne explained two key reasons why this happens.
“The first is that firms are exercising their market power,” he said.
“We need petrol, so any time we don’t have options and are stuck in any market, companies have power over us.”
When wholesale prices are going up, companies have a strong incentive to pass the cost increase on to the consumers: profits.
And when wholesale prices go down, companies have a strong incentive not to pass the cost decrease on to the consumers: profits.
You’d think pricing of essential commodities like oil would be government-regulated, but alas, that is not the case. The free market prevails over human rights again.
The second factor to support the rockets-and-feathers theory is consumer behaviour when prices change.
“When prices go up, we all feel it, we get sensitive. It’s like kicking a hornets’ nest,” Byrne explained.
“When prices fall, we get less sensitive. We don’t pay attention anymore, we don’t shop around as much, and any time we don’t pay attention, companies making profit can take advantage of that. They’re free to set whatever price they want.”
For petrol, in particular, this phenomenon is common and noticeable depending on turnover of supply.
“Quite often the price sluggishness can take some time to work its way through the system,” Byrne said.
“Once all the expensive fuel gets sold, they’ll start adjusting as they buy cheaper fuel to fill up their inventories.”
Unfortunately, this means people in less-populated areas feel the brunt of inflation.
“In cities, price drops come through faster because inventories get turned over faster. But if you’re in regional Australia, you could be waiting months for that inventory to turn over,” Byrne said.
There is something we can do: shop around.
“The best way to fight this is to search,” Byrne said.
“In petrol, once you do it once, you realise you’re in a game and you don’t want to be taken to the cleaners.
“You can’t unsee it. But you gotta see it first.”
Aleksandra Bliszczyk is a Senior Reporter for VICE Australia. You can follow her on Instagram here, or on Twitter here.
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