As Australians, we’re no strangers to the fluctuating prices at the petrol pump. It’s a topic that often dominates our conversations, especially when we notice a sudden spike in the cost of filling up our cars. But what’s really behind these price hikes? The answer might surprise you, and it’s not as straightforward as you might think.
Recently, amidst growing frustration and calls for a fuel price inquiry, the head of Australia’s peak petroleum retailer has offered an explanation that sheds light on the complex dynamics at play. Mark McKenzie, the boss of the Australasian Convenience and Petroleum Marketers Association, has pointed to a phenomenon he calls ‘discount leapfrog’ as a key factor driving up prices at the bowser.
The concept of ‘discount leapfrog’ might sound like a game, but for consumers, it’s no laughing matter. According to McKenzie, this occurs when competition among retailers for a limited supply of fuel in metropolitan areas leads to aggressive price undercutting. Retailers lower their prices to attract customers, which prompts their competitors to do the same. This cycle of discounting can drive prices below the cost of supply, forcing retailers to eventually hike prices to recover their losses. The cycle then repeats, driven by the competitive market dynamics.
This explanation comes in response to the National Roads and Motorists Association’s (NRMA) call for an inquiry by the Australian Competition and Consumer Commission (ACCC) into what they describe as ‘artificially inflated’ fuel prices. The NRMA’s concern is that major cities in Australia are among the most expensive for fuel, a situation that doesn’t seem to make sense to the average consumer – or pass the ‘pub test’, as they put it.
However, McKenzie argues that the price cycles we see are a natural outcome of competition, not a product of collusion. He also suggests that the average cost-per-litre figures often cited in media reports don’t paint the full picture, as they fail to account for the volume of fuel sold, which would demonstrate how consumers actively seek out the best prices.
Fuel price apps have become increasingly popular over the past decade, overtaking traditional methods such as price boards, loyalty programs, and supermarket discount vouchers. These apps have become the primary way consumers find deals on fuel, a trend that has been supported by ACCC data. The rise of these apps is a testament to the savviness of modern consumers and the transparency in fuel pricing that Australian governments have mandated.
Despite the insights provided by McKenzie, the situation remains complex. While the ACCC keeps a close eye on the industry, requiring retailers to publicly notify price changes, the localised nature of pricing means that patterns can vary significantly from city to city. This variation, according to McKenzie, is evidence of competitive forces at work rather than any nefarious price manipulation.
Looking at the broader picture, global events have also played a role in fuel prices. The oil price shock following Russia’s invasion of Ukraine has mostly dissipated, but ongoing Middle Eastern conflicts continue to cast uncertainty over production, demand, and transportation. In 2020 and 2021, we saw a significant spike in oil prices, but prices fell by about 3 per cent in 2024, marking the second consecutive year of declines.
As we look ahead, predictions for oil prices in 2025 remain uncertain, especially with the OPEC+ cartel losing global confidence after delayed output increases. The situation in New Zealand, where regular unleaded hit NZ$3 in April ($2.70), contrasts with the overall drop in petrol prices by 13 per cent and diesel by 23 per cent in 2024.
Have you noticed the discount leapfrog effect in your area? How do you find the best deals on petrol? Share your strategies and stories in the comments below, and let’s continue the conversation about this ever-relevant issue for Australian motorists.
Also read: Is premium fuel worth it?
