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Why is diesel so expensive? Retailers are charging 20c per liter more than they should, fuel watchers say

Australians are paying about 20 cents a liter more for diesel than they should be, consumer advocates say.

And they say there doesn’t seem to be a good reason why.

Federal Treasurer Jim Chalmers says Australians are “absolutely filthy” about the higher fuel prices.

While prices have decreased, experts say diesel prices haven’t fallen enough.

But retailers say there has always been a lag between a drop in oil prices being seen at the pump.

Even if you don’t have a diesel vehicle, you’re probably impacted by diesel prices.

That’s because it’s the fuel of choice for industry — transport, agriculture, shipping and mining — which means there are flow-on effects for the economy.

Why is diesel so much more expensive than petrol?

The price of oil shot up earlier this year after Russia was hit with sanctions over its invasion of Ukraine.

Diesel prices increased by more than petrol due to various factors including higher because of the COVID-19 economic recovery demand and fewer supplies from Russia.

Russia is one of the world’s largest oil producers.(Reuters: Sergei Karpukhia)

Between mid-April and late June, the wholesale prices for petrol and diesel rose by about 48 cents a liter and around 57 cents a liter respectively, according to the Australian Competition and Consumer Commission (ACCC).

The ACCC says prices started coming down late last month, with wholesale petrol and diesel prices dropping by about 35 and 30 cents a liter respectively in the weeks up to July 20.

In the same period, the ACCC says retail diesel dropped between 14 and 5 cents a liter in the five largest Australian cities.

Hang on, what’s the wholesale price?

Most of the fuel in Australia comes through Singapore.

The price that it is sold for there is the wholesale price, or the terminal gate price.

Market price for fuel AIP
The market price for fuel from June 28 to July 26 from the Australian Institute of Petroleum. (Supplied: Australian Institute of Petroleum)

At the moment, the wholesale price is higher for diesel, about 30 cents a liter more than petrol.

So is that why diesel is so much more expensive than petrol?

It depends who you ask.

Fuel watchers are concerned by the discrepancy between the wholesale price and the retail price of diesel (the price you pay for fuel at the bowser).

“Normally the wholesale price between petrol and diesel is roughly similar,” Ian Jeffreys from the Royal Automobile Club of Queensland (RACQ) said.

“It does vary by a couple of cents, but currently we’re seeing a 30 cent (a litre) difference in the wholesale price.”

The difference between the two prices is the profit retailers make.

“Most concerning for RACQ, we have seen a large increase in the retail margin for diesel,” Dr Jeffreys said.

“Normally we would expect [the retail margin] to be sitting at 12 cents [a litre]. Currently, it’s blown out to 33 cents,” he said on Wednesday.

“[So] the diesel price is about 20 cents higher than it should be, given where we’ve seen the market sit historically.”

FuelTrac
Sourced on July 15, these lines show the relationship between the amount retailers make for unleaded petrol (blue) and diesel (yellow) sold in Australia, above the wholesale cost.(Supplied)

He said fuel retailers — the people who run the petrol station you fuel up at — aren’t passing on the savings they’re making.

“That is the major message: Fuel companies are seeing savings… [but] We have not yet seen the savings being passed on to diesel users. I think that is of most concern,” Dr Jeffreys said.

“Look, the [wholesale] Diesel price has fallen in Brisbane and across the state and across Australia, and we are yet to see the retail price follow suit.”

Mr Chalmers says that’s what Australians are so upset about.

Oil prices started to decline about a month ago.

Jim Chalmers gives a speech in parliament as two MPS sit either side of him
Mr Chalmers says fuel companies shouldn’t treat motorists as “mugs”.(ABC News: Matt Roberts)

“Australian motorists, for good reason, get absolutely filthy about how when the global [oil] price goes up, the price rise gets passed on immediately, and when the global wholesale price comes down, it seems to take longer,” he said.

He says people are desperate for cost-of-living relief.

“Australians are filthy about that and they should be. And so, service station owners, the companies shouldn’t treat Australian motorists as mugs,” he said.

“People desperately need some relief to these cost-of-living pressures.

“And so, if and when the wholesale global price comes off, so should the price at the bowser.”

What are retailers saying?

Retailers have rejected assertions that the industry is pocketing a higher margin.

“It’s simply not true,” said Australian Convenience and Petroleum Marketers Association CEO Mark McKenzie.

He hit out at comments by Mr Chalmers, saying the lag between a drop in oil prices and the price at the pump had been well-established over decades.

A man stands on a busy street outside a petrol station.
ACPMA CEO Mark McKenzie said the tightness in the diesel market means the fuel has decoupled from the oil price.(ABC Illawarra: Sarah Moss)

Mr McKenzie also pointed to pointed to a recent drop in prices.

“Look at the drop in retail prices – they have fallen in Brisbane by 21 per cent,” he said.

He said that comes with the oil price increasing by seven per cent in the past week.

Mr McKenzie said the tightness in the diesel market means that the fuel has decoupled from the oil price.

“So, there is a marked difference in price and that is being reflected at the pump,” he said.

“Information that supports these claims is accessible online by anyone who takes the time to access what’s occurred.”

What does this mean for the rest of the economy?

FuelTrac general manager Geoff Trotter says it appears as though fuel retailers have been holding up the fuel price since June.

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