Understanding fuel price fluctuations: What you need to know
Learn how terminal gate pricing, delivery costs, and seasonal trends affect your fuel invoice helping you budget smarter and understand true fuel value with Liberty Rural.
Fuel prices are affected by a complex web of global and local factors, from the price of crude oil and shipping costs to supply and demand shifts, currency fluctuations, and competition. Understanding these dynamics can help you better grasp why prices change, even if Brent Crude oil prices are moving in one direction while TGP moves in another.
At Liberty Rural we are committed to transparency, and we hope this explanation helps clarify why fuel prices fluctuate. If you have any further questions or need more information, feel free to reach out. We’re always here to help!
Understanding fuel price fluctuations: 8 factors you need to know about
1. The difference between crude oil and finished products
While many people compare fuel prices to crude oil prices (like Brent Crude), it's important to understand that the price of crude oil doesn't directly equate to the price of the finished fuel product. Crude oil is the raw material used to produce refined products like petrol, diesel, and jet fuel, but the two prices don’t always move in sync. Other factors, like refining costs and local market conditions, also play significant roles.
Brent Crude versus Singapore finished product (diesel)
Mapping the difference between Brent Crude daily prices and Singapore Diesel daily prices (below) you can see they do not change in a similar way from day-to-day with the difference in changes varying from about USD10 per barrel to USD36 per barrel.
Mapping the daily price movements of Brent Crude against Singapore Diesel (shown below) highlights that the two do not move in sync. Day-to-day changes often vary, with the price differential fluctuating between approximately USD 10 per barrel and USD 36 per barrel.
Change in the difference between finished product and crude
2. Shipping costs: A major contributor to price
Shipping plays a big part in the price of fuel in Australia. The shipping rate is negotiated by oil companies and is influenced by global factors, such as shipping availability, tanker shortages, and geographic challenges like geopolitical events. These costs are updated regularly by a global body called the World Scale Association. If you're interested in learning more about how shipping costs are calculated, you can visit World Scale's official page for more details.
In A below, the Singapore price increases, while the TGP remains relatively stable due to a decline in sea freight costs.
In B, the Singapore price falls sharply; however, the TGP declines at a slower pace, reflecting the impact of rising sea freight costs.
Sea freight's impact on TGP
3. The exchange rate: A smaller but steady influence
Although the exchange rate can affect fuel prices, its impact tends to be smaller compared to other factors. The Australian Dollar (AUD) to U.S. Dollar (USD) exchange rate does influence the cost of imports, but small movements usually don’t cause significant price swings. When the AUD strengthens, it can make imports cheaper, helping to lower prices. When the AUD weakens, the opposite happens, and prices may rise.
AUD/USD Exchange Rate
4. International supply and demand for finished products
The demand for refined fuel products worldwide can influence prices. When demand for a particular type of fuel (like diesel or gasoline) increases, it can push up import prices. Global supply and demand, along with seasonal factors (such as the Northern Hemisphere’s winter heating oil demand), can also have an impact on local prices here in Australia.
5. Seasonality: Changes in product demand
During winter in the Northern Hemisphere, demand for heating oil increases, and refineries often adjust their production, making more heating oil and less diesel. This change in production can influence prices in markets like Australia, where we may see price increases during certain times of the year due to changes in global supply patterns.
6. Import parity pricing: Linking local and International prices
Even though Australia has local refineries, fuel prices here are still tied to international markets through a concept known as Import Parity Pricing. This means that the price of finished fuel in Australia is influenced by the cost of importing the product from international markets. Local refineries can adjust their prices to match international market conditions, ensuring they stay competitive and profitable.
7. Local market competition and other costs
Fuel prices are also influenced by local competition and factors like port fees, terminal costs, and throughput fees. Companies often adjust their prices based on what their competitors are doing in the market, and these costs are factored into the price you pay.
8. Product premia and fixed-price contracts
Fuel prices can also fluctuate due to changes in product premia, which are adjustments made in long-term supply contracts. These premia are typically renegotiated every six months, often effective on July 1st and January 1st, and can impact the prices passed on to consumers. At Liberty Rural, we adjust our prices around February 1st and August 1st to reflect the new product premia, ensuring we’re providing fair and transparent pricing.
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