Yahoo Finance Petrol price pain: How fuel defies the laws of economics
Spiking fuel prices might make same families rethink that school holiday road trip.
This is a story about petrol. Petrol is weird, in the following way. We buy an insanely stable amount of it. The graph just below shows what I’m talking about.
Except for during the pandemic, every month is just like the month before. Our vehicles drink the same amount... for years.
The only thing that causes the number to deviate? Lockdowns. The dips in 2020 and 2021 were caused by lockdowns, particularly in Victoria and NSW. Yes, you have to literally lock people in their homes - using the full force of the law - to change the amount of petrol we buy.
It’s just incredibly stable, even before you look at the seasonally adjusted line (the black line on the chart above, which takes into account that February is shorter, May is longer than June, Easter falls in different months each year, etc, etc.)
Also by Jason Murphy:
There’s a slight, long-term downtrend in petrol sales as cars get more efficient, as diesel vehicles get more popular and, right at the end, as EVs begin to show up in relevant numbers. This stability is not because petrol has a nice predictable price. Anything but!
As the next chart shows, the price of fuel is up, down, all over town. It was $1.50 a litre in 2013 and under $1.00 a litre by 2016. This year it soared beyond $2.00.
But demand doesn’t really budge. Apparently, nobody explained the laws of supply and demand to petrol. Um, hello? When the price goes up, demand should fall. No? Not ringing any bells?
(It’s important to note I’m being a bit facetious here. Technically, economics does have an explanation for this: if people buy the same amount of something, no matter what the price, we say demand is price-inelastic. Most things are not as price-inelastic as petrol because most things have substitutes. But you can’t put diet cola in your fuel tank, LPG has gone out of fashion, and EVs aren’t available in large numbers yet.)
The problem with price-inelastic goods is exactly this: we buy the same amount no matter what. The full hit of the price rise hits our budget. This is why Australian families are howling. It’s hard to drive less. It’s slow to buy a new, more fuel-efficient car.
So, if you were spending $100 a week on fuel when the price was $1.20 a litre, you’re spending $200 a week now that the price is $2.40 a litre (which it can be for 98 Octane).
That’s a big hit to your family bottom line, especially since everything else is going up at the same time. No wonder Australian families have stopped saving. All our money is going to groceries, fuel and mortgages. Insurance and electricity have gone through the roof too.
Oil price spikes
The reason for the rising price of fuel is partly global oil prices. A barrel of Brent Crude oil costs nearly US$100 now.
It’s been over $100 before, as you may remember. But, back then, our dollar was strong. If it costs US$100 and our dollar is at parity, a barrel costs $100. But if our dollar buys just 64 US cents - which is the case currently - a US$100 barrel costs $155. So our low dollar is making the cost of importing petrol a lot higher.
The bad news is nobody is forecasting a big recovery in our dollar. In fact, as the Chinese economy wobbles and the prices of our big exports fall, our dollar is expected to stay relatively weak: CBA expects it to stay under 65 US cents for the rest of the year and make it back to just 74 US cents next year.
Could be time to start researching an electric vehicle.
Capital city breakdown of fuel costs
The price of fuel varies by location, of course.
Many Aussie families will set out on a road trip to take advantage of the upcoming school holidays. But where you live will make a bit of a difference to what you fork out.
Overall, Sydney was the most expensive capital to fill up a tank in. Outside this, there wasn’t a huge difference between most averages. That’s until you look to South Australia, where Adelaide had a 30c difference per litre than its NSW counterpart.
Here’s an average price breakdown per litre for the past week:
Sydney
Petrol: $2.18
Diesel: $2.17
Melbourne
Petrol: $2.01
Diesel: $2.18
Brisbane
Petrol: $2.03
Diesel: $2.18
Adelaide
Petrol: $1.88
Diesel: $2.15
Perth
Petrol: $2.02
Diesel: $2.16
Canberra
Petrol: $2.05
Diesel: $2.22
Hobart
Petrol: $2.08
Diesel: $2.22
Darwin
Petrol $2.03
Diesel $2.18
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