How do we calculate the Oil / Petrol price?

We use the "Average" price for Unleaded Fuel in Sydney, based on the fuelwatch website from MotorMouth.
(Put your mouse over the city and this will bring up the average, highest and lowest price.) The website is updated throughout the day.

We use the lowest price per barrel from the Bloomberg Energy website, also updated throughout the day.
There are three prices listed, (NYMEX, Brent, WTI) all about the same. We use the lowest for our calculations.

We use the exchange rate AU dollar against the US dollar again based on the Bloomberg Benchmark Currency Rates and again this is updated throughout the day.

The calculation is: Cost of 1 barrel of crude in US dollars divided by 159 litres = cost of 1 litre of crude in US dollars.
Apply (divide by) the exchange rate -> cost of 1 litre of Crude in AU dollars.

Example: Crude oil is US$ $73.93 per barrel. Divide by 159 => 0.4650 US dollars per litre.
Exchange rate = $0.9101 US cents for 1 AU dollar => 0.5109 AU dollars per litre.

If the price quoted on TV, Radio or Bloomberg is $73.93 per barrel, then that is equivalent to 51.09 (Australian) cents per litre.
So why are we paying 120.000 cents? Who pockets the difference?

Who Takes What out of our $1.2?

Petrol Breakdown 1 litre of petrol consists of:

item 10.915 cents GST
item 38.143 cents in excise
item1.2 cents for the service station (Note: The credit card companies get more)
item51.09 cents Crude oil (based on today's price and today's exchange rate)

That is a total of 49.05 cents direct tax + 52.29 cent in raw product and service station margin, making a total of 101.34 cents

Petrol-Legend.gif Who receives the other item 18.66 cents per litre? (see BBC news in side panel.)
18.66 cents per litre might not sound all that much, but multiply that by the estimated 20 billion litres of petrol used per year in Australia, and you are looking at a gross margin of 3.73 billion dollars.
Add to this the margin on the sale of diesel (another 17 billion litres).

 

FAQ

Australia has a lot of oil. Why are we paying world prices for our own oil?

Australia is about 60-70% self sufficient in regards to its oil demand.
In 1970, during the Gorton Government, the price of domestically produced crude oil was fixed for 5 years at about $2.10 per barrel.[1]

As a result, the quadrupling of world oil prices at the beginning of 1974 was not felt directly in Australia.
However, it made financial sense for oil producers to sell Australian oil to other countries.
(Extract oil for $2.10 per barrel and sell it in Europe for $10.00 or buy it from OPEC for $10.00 and sell it to Europe for $10.00
- You don't have to be Einstein to work out which one is more profitable.)

Beginning in 1975, the Australian Government introduced the Crude Oil Levy.
This tax, which at first partially, and by 1978 completely, increased the price paid by refineries for domestic crude oil to world parity.

The "Levy" was calculated to be the world price for oil, less the cost of local production.
However, instead of passing some of it on to the consumer, they pocked the whole of the tax, because:

"Australians have continued to enjoy artificially low prices for [Australian-produced] crude oil.
While the rest of the world was facing up to the inescapable fact the days of cheap energy were over,
Australians were continuing to pay less than half the world price for Australian oil.
In the light of the budgetary situation and the desirability of improving energy use, the government
has decided all Australian-produced crude oil should, from tomorrow, be priced to refineries at import parity levels.
This will mean [motorists] will in future pay [petrol and diesel] prices based on world oil prices… " [2]
Premium petrol was 21 cents per litre.

Successive Governments have tinkered at the edges.
Paul Keating, as treasurer in the Hawke Government, changed the "Petroleum Resource Rent Tax" to include diesel and a few other products.
He also introduced 6 monthly indexation.

In 2001 the Howard Government abolished the 6 monthly indexation of fuel excise, but kept the excise.
And he introduced the GST.

My understanding is that a barrel of oil produces about half a barrel of petrol - say 80 litres.
If so, your calculations would need revision.

How much petrol or diesel you get out of one barrel of crude is hard to say.
This amount depends on the type of oil used i.e. heavy or light, and what the refinery operator needs.

Yields from the simplest refinery, a topping plant, would most closely reflect the natural yields from the crude processed.
A light crude would yield a higher percentage of Distillate and Gasoline than a very heavy crude.
The yield of higher-valued products like gasoline and diesel oil from a barrel of crude using a cracking refinery would be greater, and that of a coking refinery would be greater still.
The operator of the last two types of refineries can adjust the percentages, depending on requirement. In winter more heating oil is needed, in summer more fuel for transport.

In theory it would be possible to process almost any type of crude oil into (almost) 100% petrol or diesel.
In practice, the refinery operator has to balance the cost of doing this against the profit he would make.
When petrol and diesel sell for about the same price, there is no advantage in spending the extra money by cracking diesel into petrol.

Yields By refinery Type
HFO = Heavy Fuel Oil | Distillate = Diesel | Gasoline = Petrol | C3/C4 = Propane & Butane (LPG)

Comparison of Yields by Refinery Type illustrating that using the same crude input (in this case a heavy crude with a 27 API) yields a very different range of petroleum products depending on the refining units and processes used.

If the oil companies raise the cost of fuel by 1 cent per litre at the pump, what would their profit increase be for that day?

In Australia the combined fuel companies sell about 17 billion litres of petrol per year. On average, this would be about 46.6 Million Litres per day.
(That's an average, on "cheap days" they would sell more, on "expensive days" less.)
Assuming they sell 46.6 million litres and they receive one more cent per litre they would receive an extra $466,000.
However that is not clear profit.
The Government, through the GST, collects 10% of that; about $42,000. ($42,364 to be exact, the $466,000 includes 10% GST).
Additionally the company has to pay tax. At 30% that would be another almost $127,000 to the government. (30% of $466,000-$42,364 = $127,091).
Therefore, in round figures; an increase of 1 cent will give the oil companies an extra $297,000 but the government collects an extra $169,000.
As you can see from this, there is no incentive for the government to reduce the cost of fuel.
In fact the government has a vested interest in keeping fuel prices high.
The government can order inquiries, appoint a “petrol commissioner” and make all the right noises, but at the end of the day, the more expensive fuel is, the more money the government collects.

What are "heavy" crude and "light" crude?

Light crude is defined as having a high specific gravity. This classification of oil is easier to pump, transport and refine into high value products like petrol, diesel and jet fuel. Because of this, it tends to be more expensive.

Heavy Crude usually contain high concentrations of sulphur and several metals, particularly nickel and vanadium, and high amount of wax.
These are the properties that make them difficult to pump out of the ground or through a pipeline and interfere with refining. These properties also present serious environmental challenges.
Heavy oil can be broken into the smaller petrol molecules, through the use of a "catalytic cracker", but this process uses energy and the resulting petrol is thus more expensive. That cost is offset by the cheaper cost per barrel of the heavy crude.

What are "sweet" and "sour" Crude?

Sweet Crude has small amounts of sulphur (mainly in the form of hydrogen sulphide H2S) (0.5% or less) and carbon dioxide, and is used primarily in the production of petrol.
Sulphur does damage to the equipment when refining and does damage to the environment (and your car's engine) if not removed. If the percentage exceeds 0.5% it is classified as sour. Because of the costs involved in removing the sulphur, sour oil tends to be cheaper than sweet oil.

Why do you use the lowest price of the 3 benchmarks for your calculations?

Australian refineries are capable of refining heavy crude. Most Asian refineries are not.
Australia produces its own crude oil, but it is a light sweet crude. It is valuable, so we export it and import the less expensive heavy crude. Heavy crude, like Dubai Fateh, is about US$ 5 per barrel less expensive than Brent or WTI.
We should be quoting the heavy crude price, but because they are not regularly published, we use the cheapest price of the ones that are quoted just to be on the safe side.

Why is the price quoted on radio and television different to that quoted on Bloomberg?

There are about 160 different Crude Oils on the market. Some are heavier, they have longer Carbon-Hydrogen chains and are more difficult to refine into petrol, some are lighter and easier to refine. Some contain very little sulphur, others contain a lot. The quality and weight of the crude oil makes a difference to the price. The prices quoted on radio and TV depend on which "crude" they refer to.

The benchmarks most frequently quoted are:

  • WTI (West Texas intermediate) crude oil at a reference sales point in Cushing, Oklahoma. This oil is of very high quality and is excellent for refining a larger portion of gasoline. It is a "light" crude oil, and it contains only about 0.24 percent of sulphur (making it a "sweet" crude oil)
  • Brent, (or rather Brent Blend) is a combination of crude oil from 15 different oil fields in the Brent and Ninian systems, located in the North Sea. It is still classified as a "light" crude oil, but not as "light" as WTI. It contains about 0.37 percent of sulphur (making it a "sweet" crude oil, but again slightly less "sweet" than WTI).
  • Dubai Fateh - Heavy Crude.

Some others are: Alaska Crude - Heavy Crude; Venezuela Orinoco Oil Belt - Heavy Crude; Greater Burgan, Kuwait - Very Light and Light Crude; Athabasca Oil Sands - Alberta, Canada - Heavy Crude.


How much has the crude oil price changed over the last Month, Quarter, Year, 5 Years?



(Price in US dollars per Barrel.)
Graph courtesy Oil-Price.net

 

Excise Duty

What is the tax on petrol?

There are many taxes on petrol (and fuel in general).
The most easily identified are:
  • Excise = 38.143 cents per litre (both on petrol and diesel)
  • GST = 10% on the sell price.
    On today's average pump price for unleaded petrol, this equals 10.915 cents per litre.

Doesn't that mean we are paying GST on the excise, in other words, aren't we paying a tax on a tax?
Yes.

 

 

What other taxes are there on petrol?

There are the more 'hidden' taxes:
Royalties
Australia is rich in coal, gas and oil.
When the oil companies take the oil out of the ground they pay a royalty (tax) to the State Governments.
There are several "Royalties", depending which State the company is operating in:

  • Wellhead Royalty (WA, NSW)
  • Resource Rent Royalty (WA)
  • ad valorem (value) (QLD)
  • ATP (Authority to Prospect) (QLD)
  • PL (Petroleum Lease) (QLD)
  • PPL (Point to Point Pipeline Licence) (QLD)
  • PPL (Area Pipeline Licence) (QLD)
  • PFL (Petroleum Facility Licence - 2km2 or less) (QLD)
  • PFL (Petroleum Facility Licence - Greater than 2km2)(QLD)
  • Data Acquisition Authority (QLD)
  • Water Monitoring Authority (QLD)

How much is this royalty and how is it calculated?

Currently we only have the information for WA, Qld and NSW. Other states will be added over time.
If you really want to know, get yourself a strong cup of coffee and click on the link "Royalties".

Petroleum Resource Rent Tax (PRRT)

The petroleum resource rent tax applies to all petroleum projects in offshore areas.

In 2009‑10 PRRT is expected to increase by $120 million from 2008‑09, predominantly reflecting expected increases in crude oil production in some major fields.
The oil companies pass that tax on to the consumer; us.
And of course when the (oil and transport) companies make a profit, they pay company tax, which is past on to the consumer; us.

Hang on, doesn't that mean we are paying GST on the royalties and on the tax companies pay, in other words: a tax on a tax?

Yes.

NOTES:

[1] MACRO-ECONOMIC EFFECTS OF THE IMPORT PARITY PRICING OF OIL, Australian Graduate School of Management University of New South Wales 1981, p 3

[2] Absurdity by the tankful in fuel tax debate, SMH 24 May 2008