Things could get wild

TREASURER Jim Chalmers wants you to know that an end to the temporary 22c cut to petrol taxes next week should not trigger an immediate spike in prices. Depending on where you live and when you buy your petrol, Jim’s big prediction could prove wishful thinking.

As the government prepares to reimpose the standard fuel excise – they will be adding 23c, just quietly – many are wondering how fast the price rises will flow through.

“Fuel prices in most parts of the country at the moment are now around 50c a litre below the peak recorded in July,” Mr Chalmers said this week.

“Industry estimates that there will be more than 700 million litres of lower-excise fuel in the system when the fuel excise is reintroduced.

“This is 700 million reasons why the price should not shoot up by the full 23c on the night that the excise relief ends.”

The Treasurer is half right according to retailers. There are about 700 million litres sloshing around in the system right now.

However, petrol retailers caution there’s about a 50:50 split between retail stock and wholesale.

It’s probably more useful to explain it in terms of days.

There’s about five days worth of cheap retail petrol that still needs to be sold after the price hike kicks in on September 29. But the petrol price cycle is also still rising in some areas so it might pay to wait until the weekend to fill up.

From the wholesalers, to the trucks, to the petrol retailers, the

700 milion litres kept on standby is there to ensure there are no issues if some element of the supply chain breaks down.

“Think of it as a sushi train,’’ explains Australasian Convenience and Petroleum Marketers Association chief executive Mark McKenzie.

It is not a “stockpile” as some have suggested but the normal “fat” left in the system at any time to deal with any nasty surprises.

What it does mean is that if your petrol station automatically hikes prices at midnight on September 29 by 23c they are probably having a lend.

“What we expect to see here is huge volatility,’’ Mr McKenzie said.

“For short-term pain, to keep customers, some retailers may cop a bit of loss. It’s counter-intuitive and it will vary. Ultimately we expect it will go up.”

To understand how much prices will go up for retailers, consider the impact of the fuel excise hike on a tanker of fuel.

“A delivery on the Monday after the excise increase will be $10,000 more,’’ Mr McKenzie said.

Currently a petrol tanker costs about $60,000 but when the tax hit kicks in it will be more than $70,000. His advice to motorists is simple. “So, use a fuel price app. We’re expecting significant volatility in the period leading up to and after the excise cut,’’ he said.

“There will still be bargains after the cut because we expect to see retailers that will still have the low excise fuel. So shop around. It will not be geography, it’ll be individual businesses within areas.

“I can be in the Adelaide Hills and we’ve got a high volume site that’s getting daily delivery, so my increase comes in straight away. But there might be a petrol station across the road that’s a small business that’s not selling as much, they might have lowexcise fuel for longer.

“The second thing is to watch the fuel price cycle. So the fuel price cycle at the moment has increased in Sydney, Brisbane and Melbourne.

“And what that means is where we’ll probably top out towards the end of this week. If I look at Brisbane, for instance, it’s eight days into what is normally a 10-day rise.

“So we should start to see fuel prices discounting over the weekend, which means we’ll have four or five days of falling fuel prices.”

Time will tell, but there’s little doubt the looming price shock at the bowser could pose a significant political test for the new government.

The shock and awe aspect of the petrol price reduction introduced by former treasurer Josh Frydenberg was always designed to be a poison pill for the incoming government.

If the Liberals won it would have been a masterstroke. If they lost it would deliver a $3bn problem for the incoming prime minister.

And that’s how it ended up. According to the National Centre for Social and Economic Modelling, the fuel excise saved the average household in inner-urban areas of Sydney and Melbourne about $132.

However, households in outer suburbs that drive longer distances would have saved about $242.

The average household in rural and remote areas will save $194.

At midnight on September 29, that’s all going to change.

Enjoy it while it lasts.