The fuel price cycle

The weekly petrol price cycle is a textbook Edgeworth price cycle — a form of oligopolistic pricing behaviour documented in economics literature. It works as follows.

A small number of retailers set prices in a market where each can observe the others’ prices in near-real time. One retailer, seeking to gain market share, cuts its price below competitors. Competitors respond by matching the cut. The undercutting continues until prices reach a floor — usually close to the wholesale cost — at which point it becomes unprofitable to cut further.

At some point, one retailer restores its price to a higher level. Competitors follow, because the price transparency means each knows the others have raised prices and has no incentive to remain at the lower price alone. Prices spike. The cycle begins again.

The ACCC’s assessment is that this behaviour is not collusion — there is no evidence of an agreement between competitors to fix prices. Each firm is acting in its own rational short-term interest. The collective harm to consumers is not the result of deliberate coordination but of the structural conditions of the market: few players, high price transparency, captive demand.

Captive demand is the key word. Unlike a luxury good, you cannot stop buying petrol. You can time your purchase to avoid the cycle peak — if you know about the cycle, and if your schedule allows. Most drivers do neither.

The fuel retail market in Australia’s capital cities is dominated by four or five companies. Ampol (formerly Caltex Australia) — Australia’s largest fuel company, listed on the ASX. Viva Energy, which operates under the Coles Express brand through a supermarket arrangement. BP Australia. EG Group, which acquired the Woolworths Petrol network in 2019. And Costco — a small number of outlets operating at significant discount, used as a pricing reference.

These players set the price environment in each capital city. The wholesale price is benchmarked to the Singapore Mogas 95 international price — the appropriate benchmark given Australia imports most of its refined fuel. The ACCC tracks the ‘gross retail margin’: the gap between retail prices and the international import parity cost, adjusted for excise and GST. At the peak of each weekly cycle, gross retail margins are elevated above what the benchmark would imply.

Western Australia introduced FuelWatch in 2001 and made it mandatory in 2003. Under FuelWatch, fuel retailers must submit their prices to the government by 2pm each day. The submitted price is locked in for the following day — retailers cannot change their price during the day. Prices are published each evening for the following day.

The result: Perth does not have the same weekly price spike cycle that characterises Sydney, Melbourne, Brisbane and Adelaide. Prices are more predictable, and consumers can make informed purchasing decisions using the published data.

The eastern states have not adopted FuelWatch or any equivalent. The ACCC has noted FuelWatch as an example of effective price transparency regulation. Fuel companies have consistently opposed mandatory disclosure in eastern states. State governments have not pursued it.

The ACCC’s published consumer advice: petrol is typically cheapest in Sydney on Tuesday or Wednesday mornings. In Melbourne, Monday or Tuesday. The ACCC’s solution to a documented market failure that persists for over 20 years is to publish advice about what day to fill your tank.ACCC, consumer petrol price advice

Fuel excise is 48.8 cents per litre. Like Transurban’s tolls, it is indexed to CPI and rises automatically twice yearly. The government does not need to make a decision to raise it — it rises by default.

In March 2022, as the Ukraine war caused a global oil price spike, the Morrison government halved fuel excise — cutting it from approximately 44 cents per litre to 22 cents per litre for six months. The cut cost approximately A$3 billion in foregone revenue. Prices fell by approximately the excise amount. When the excise was restored in September 2022, prices rose accordingly.

The excise cut demonstrated that government has the capacity to reduce petrol prices rapidly and substantially when it chooses to. The structural problem — the cycle, the oligopoly market, the lack of eastern-states price transparency — was not addressed by the temporary cut. It returned in full when the excise was restored.

Meanwhile, fuel tax credits allow businesses to reclaim the excise paid on off-road fuel use. This credit is worth over A$9.5 billion per year — the largest single fossil fuel subsidy in Australia. The household driver pays the full excise. The mining company gets most of it back.

The price cycle — for all its consumer harm — at least offers urban drivers the option of buying at the trough. Regional Australians do not have this option.

Regional fuel prices are persistently above capital city prices. The ACCC monitors 190 regional locations and consistently documents the premium. The causes are structural: lower volume at each site (reducing the retailer’s purchasing power), higher logistics costs, less competition between fewer outlets, and no cycle benefit.

Regional Australians typically have longer average driving distances than urban residents. They use more fuel per household. They pay more per litre. And they have fewer alternatives — limited public transport, greater distances between destinations — that make driving discretionary.

The fuel premium is regressive in the same way that tolls are regressive: it falls hardest on those with the fewest choices.

The ACCC has monitored Australian petrol pricing for over 20 years. Its monitoring direction was extended for another 5 years in December 2025. The price cycle continues. The eastern states have no FuelWatch-equivalent. Regional Australians pay a persistent premium. The excise rises automatically. The four to five companies that dominate fuel retail in each capital city have never faced structural intervention.