The Australian Competition and Consumer Commission (ACCC) released its fifth quarterly report into the petroleum industry this week, but a close examination of the report raises some questions that should be borne in mind when considering the report’s implications.
Firstly, the ACCC identifies Brent crude as a benchmark price comparison point, however, MOPS95 Petrol is the key petrol pricing benchmark for Australia. Further, the ACCC fails to acknowledge that data provided to price monitoring organisation Informed Sources may not provide a complete overview of pricing at retail outlets as not all service stations report data directly to the service. These implications of these observations are examined in more detail below.
1. Benchmark price of crude oil
The report refers to the low crude oil cost of Brent crude, noting that Brent crude prices in December 2015 were at their lowest level in more than 11 years, and were significantly below their long-term average.
ACCC chairman Rod Sims said high refiner margins during the quarter had limited the benefits for drivers, saying: “Motorists are not fully benefiting from low crude oil prices, as they use petrol in their vehicles, not crude oil, and the difference between crude oil prices and international refined prices (i.e. the refiner margin) in 2015 was high”.
However it should be noted that in Australia, being part of the south east Asian region, Australian oil companies use Tapis crude as the benchmark, not Brent crude. This fact is clearly substantiated by the Australia Institute of Petroleum (AIP).
According to the AIP :
- The price of petrol in Australia is dependent on world market prices
- Crude oil, petrol and diesel are different products and are bought and sold in their own markets. Each market is regionally based and there are linkages and transactions between regional markets.
- Prices in regional markets reflect the supply and demand balance in each market and the physical characteristics and quality of each commodity. Prices in regional markets can be volatile and can move in different directions from each other.
- Australia’s regional market for petroleum products is the Asia-Pacific market.
- Tapis crude oil is the key crude oil benchmark for the Asia-Pacific market and for Australia – not West Texas Intermediate (the US market benchmark) which is widely reported in the media.
- The Singapore price of petrol (MOPS95 Petrol) is the key petrol pricing benchmark for Australia.
2. Price monitoring data
The ACCC report states that in December 2015 the ACCC’s Federal Court proceedings against Informed Sources and five petrol retailers including 7-Eleven, BP, Caltex, Coles, and Woolworths, were resolved by way of court enforceable undertakings.
“As part of the resolution, from 20 May 2016 Informed Sources will make price information available to consumers for free on a near real-time basis at the same time as it is received by retailers. Even more important, the pricing information exchanged between petrol retailers will also be made available to third parties, including app developers and motoring and consumer organisations,” the ACCC said.
This reference to the pricing information being made available to the public fails to consider the many independent and privately owned retailers, who are not directly aligned nor controlled by these majors and who are not compelled to report pricing data directly to the price monitoring service. Many of these independent retailers do not subscribe to or report to Informed Sources and set their price boards using their own methods and assessment of market factors.
It is difficult to see then, how the resultant price data covers all sites in the market with equal timeliness or accuracy. Accordingly, while useful in overall terms, the data will not reflect the complete picture.
It is surprising for the ACCC to make these claims, especially in regard to the Brent crude pricing relative to the Australian market, and the expectation that all of the industry would participate in the price monitoring service.
Colin Long is the petroleum news editor of C&I Retailing Magazine. He can be contacted at email@example.com.