Fuel prices are constantly changing on a day-to-day basis, and due to its price inelasticity and reliance on fuel for everyday life, it seems that we as a society will continue to pay whatever price is offered, not questioning it. But have you ever wondered why fuel prices seem to fluctuate so much? Here are a few reasons:
Fuel Price Cycles
Fuel prices in major Australian cities will follow a cycle, and prices will go down at a steady rate and then sharply increase. These cycles usually occur over 1-2 weeks, where the cheapest and most expensive days may differ from cycle to cycle.
Location
Metropolitan fuel prices tend to be cheaper than those of regional prices. The reason for such include freight costs passed onto the final prices, as it takes more time and resources to reach regional sites. Another reason can be attributed to a lower volume of sales compared to metropolitan locations, thus regional locations may have to sell fuel at a high price per unit to break even.
The competition of local fuel retailers impacts price levels and fluctuations. By having four different petrol stations within a 1km vicinity of each other, the prices will usually be lower as each location is competing with each other and driving the cost per unit down in an attempt to appeal to consumers and encourage them to fill up with them.
Supply and Demand
Fuel prices are determined by crude oil prices on a global level. With the basic principle of economics, if there is an increase in the supply of crude oil, for example, the price will be lower. This is because there is excess supply in the market, and the selling price will drop in an attempt to offload excess goods. In the case of the fuel industry, this decrease will then be passed onto the consumer at the bowser, seeing a decrease in fuel prices per litre.
