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Alexander Lewis

Why is petrol still so expensive in Queensland? When will fuel costs go down?

Despite the recent fuel excise cut, petrol prices are soaring past $2 a litre in Brisbane. (ABC News: Michael Lloyd)

The fuel light is never a welcome sight for drivers, but with petrol prices still soaring, the need to fill up fills many Queenslanders with dread.

With prices heading towards $2.20 a litre in Brisbane, a tank of petrol can put a sizeable dent on your bank balance.

So why is fuel so expensive and when will its price go down again?

For Brisbane man David Burgess, soaring fuel costs have had a major impact on his courier business.

"It's absolutely ridiculous," Mr Burgess said.

"My costs have actually doubled since I started the business [two years ago].

David Burgess says "ridiculous" fuel prices have impacted his work as a courier. (ABC News: Michael Lloyd)

"It's affecting everybody. If my costs go up, the costs of other things goes up. I have to charge more and [businesses have] to pass on the cost somehow."

A rendezvous with the pump hasn't been so expensive since March, when the federal government halved the fuel excise to 22 cents a litre.

What's driving up the cost of fuel?

Well, it's difficult to say. 

Economics professor at the University of Queensland John Quiggin said it's "hard to give a convincing explanation".

He said the price of oil hadn't moved much from its March high.

Professor of economics at the University of Queensland John Quiggin says petrol retailers are trying to rebuild profits. (ABC News: Michael Lloyd)

"We're, of course, seeing general supply chain disruptions, which affect things like petrol refining, but it's not obvious that they're worse than they were a couple of months ago."

Professor Quiggin said the most plausible explanation was that petrol retailers are trying to rebuild profits.

"The reduction in taxes has really gone to margins, rather than being passed onto households," he said.

Australia's peak body for service stations said there's no "systemic" evidence of that.

"But I wouldn't be saying that all [petrol retailers] 100 per cent have passed it on," Australasian Convenience and Petroleum Marketers Association chief executive Mark McKenzie said.

Brisbane petrol prices have been more than $2 a litre for some time.  (ABC News: Michael Lloyd)

Mr McKenzie blamed rising oil costs in recent weeks and a falling Australian dollar, relative to the US greenback.

"The effective price in Australia has actually gone up," he said.

According to the Australian Competition and Consumer Commission (ACCC), the cuts to the fuel excise have been passed on, "to a large extent".

However, the watchdog said, the impact of the excise cut may not be clear to motorists because of petrol price cycles in capital cities.

The RACQ said Brisbane had now entered the expensive phase of the cycle, which tends to last a week.

During Brisbane's last peak, on April 29, the average price of fuel was 31 cents lower than the peak before the cut.

What is the fuel price cycle?

This refers to the movement in retail fuel prices from a low point, to a high point then back to a low point.

"We think it started back in the 1960s, when everyone was paid in cash and paid on a Thursday," RACQ spokesperson Nicky Haydon said.

The fuel price cycle is thought to have began in the 1960s. (ABC TV)

With most people filling-up on Thursdays, she said, a handful of service stations brought in a "cheap Tuesday" to attract more customers.

"They'd hike them again on a Thursday, when they knew people were being paid. So that started to create that weekly price cycle," Ms Haydon said.

"Certainly, in the past decade, that's morphed into the month-long cycle we see today."

Cars filling up fuel at a Shell petrol station in the 1960s. (ABC TV)

How does the fuel price cycle work?

The goal of a service station is to maximise its volume of sales, Mr McKenzie said.

So they play a game of "competitive leap frog".

"They try to undercut each other … and they continue to do that until they're at the bottom of the cycle," Ms Haydon said.

At the bottom of the cycle last week, many service stations were selling for less than the wholesale price, Mr McKenzie said.

"You get to a point where you're losing too much money and you decide that you're better off actually chasing the margin, rather than the volume."

He said that when one business lifted its prices, the rest would generally follow.

Experts say service stations undercut competitors in price until they're at the bottom of the fuel price cycle. (ABC News: Michael Lloyd )

Professor Quiggin said the price cycle did not have any base in economics.

"It goes up and goes down without any variation in underlying costs," he said.

So when is best time to fill up?

The short answer is: not now.

Instead, the RACQ has advised motorists to avoid filling up until the local cycle starts to dip.

This is expected to happen in the next week or so.

Is there any long-term relief in fuel costs on the horizon?

That is difficult to say.

Mr McKenzie said prices were not expected to skyrocket but added that oil prices look to remain volatile.

He said oil producers had been cautious with "lumpy" demand, as economies emerged from COVID-19 lockdowns at different times.

"The supply and demand balance has been very tight and that's what's creating that volatility," he said.

Mr McKenzie expects the volatility will even out in the "back half" of the year.

"We should start to see prices sit somewhere around that $1.50 to $2.00 mark."

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