Exercise the answer? What goes in to determine oil prices | The Canberra Times

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There has been a lot of talk about whether slashing the fuel excise tax would assist motorists’ hip pocket at the bowser. Australia’s fuel excise tax sits at 44.2 cents a liter and Prime Minister Scott Morrison has watered down speculation the tax would be wound back amid concerns fuel prices could hit $2.50. Over the Tasman, the New Zealand government announced it would slash its exercise tax by 25 cents to ease costs to motorists. But according to the Australian Competition and Consumer Commission, the nation’s excise tax is fourth lowest in the world. It is also the major source of revenue for road infrastructure investment. With a growing chorus of voices push for the tax to be dropped it is worth looking at what influences prices at the pump The biggest factor influencing current cost is the global price for oil, which has been pushed up due to the Ukraine crisis. Market jitters have been sparked by concerns Russian oil supplies could be blocked beyond just US sanctions and is threatening usual stocks. Russia is the third-largest producer of oil and equates to around 9 per cent of the world’s reserves. Australia’s unleaded petrol prices is based off the price of the benchmark Singapore gasoline price known as Mogas while diesel prices are based off the Gasoil index. Mogas prices last week rose to $US130.81 a barrel which is the highest seen since February 2013. NRMA spokesman Peter Khoury said the biggest driver was the cost Australia must pay for refined petrol. Mr Khoury noted halving the exercise tax would have little impact on savings to consumers, saying the cuts would have been gobbled up by the recent surge in prices nearing 20 cents. “There was talk calling to cut half the excise for 12 months,” he said. “If you’ve done that two weeks ago that cut would have already been eaten up by prices at the bowser.” The refining process in Singapore adds about 7.5 cents a liter to cost of petrol. Mr Khoury said prices in Canberra had gone up 30 cents in the past week and halving the excise would have made little to no difference. He also flagged Mogas prices were beginning to fall and if the declines continued, fuel under $2 a liter could return in just over a week. “In the last five days, Mogas has fallen $US24 a barrel and Gasoil, which is the diesel benchmark has fallen $US52 a barrel,” Mr Khoury said. “So if those falls are sustained and they continue then we’re going to see savings at the browser in the next seven to 10 days, hopefully that are significantly better than cutting the excise.” OPEC’s control over global supplies of oil is also a factor in what price is set at the bowser. ACCC chair Rod Simms recently said OPEC was withholding supply in a deliberate attempt to jack up prices. The current exchange rate of the Australian dollar also plays into the cost of purchasing fuel from overseas. Fuel companies are also wanting to retain their cut of the deal. Retail mark ups can make up to 15 per cent of the cost to fill up a tank of petrol. Retailers won’t want to eat into their profit, so higher costs means higher price escalation. Mark ups cover the transport, wage, rent of the premise, wages and also the profit. Higher prices also mean the wholesale GST on fuel becomes bigger and are inevitably passed onto the customer. Mr Khoury said the wholesale terminal gate price last week blew through the roof by more than 19 cents. The terminal gate price is the main indicator for analysts to determine how much the price will go up, but noted Canberra does not have a price cycle like other cities. “Canberra’s average is $2.80 a litre. It will take time (for prices to drop) particularly in Canberra. Canberra is notoriously bad for petrol prices,” Mr Khoury said. Excise tax on fuel is an important revenue stream to pay for road maintenance and investment in Australia. The money collected is distributed among the states and territories to pay for road upgrades, safety and new developments. It can often be seen as Australia’s road congestion and motorist tax. Mr Khoury said those revenue streams will be even more vital following the clean up from flooding across the east coast which will have significantly damaged a number of roads. “If you cut that then obviously that would create all sorts of challenges in terms of being able to maintain a safe and world class road network,” he said.

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