The competition watchdog will oppose the sale of more than 500 Woolworths-owned service stations to rival BP, amid concerns it would push up petrol prices.
BP currently supplies fuel to 1,400 BP-branded service stations around Australia, setting prices at about 350 of them.
It had planned to acquire the 531 service stations currently operated by Woolworths to add to that network.
However, the Australian Competition and Consumer Commission (ACCC) said BP service stations currently averaged higher prices than Woolworths ones, and the acquisition would lessen that competition from the supermarket giant and probably push prices higher.
"BP prices at premium levels, whereas Woolworths is a strong price competitor," ACCC chairman Rod Sims told ABC News.
"So you find that BP's prices in the major capital cities are anywhere between 1.5 and 3 cents a litre greater than Woolworths.
"More important, perhaps, is that BP increases its prices more quickly in the up phase of the fuel price cycle and is slower to discount."
"Fuel is such an important component of people's income and welfare that even a 1 to 2 cent a litre increase does matter," he said.
"So we think that is substantial and therefore meets the hurdle of a substantial lessening of competition."
However, Mr Sims said the difference in prices between Woolworths and BP could be even bigger at certain times in certain areas.
"It could be larger when you get the interplay of those [discounting] cycles," he added.
One of the reasons that BP has higher prices is that it supplies fuel to more than 1,000 independently operated service stations and does not want its own outlets to be seen to be consistently undercutting its wholesale customers.
"We believe it makes them a little more constrained in lowering prices because they would be seen then to compete with entities that are selling their fuel," Mr Sims explained.
