Petrol prices to fall

World oil prices slump

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published September 21, 2012 12:07 pm AEST

Motorists could see substantial falls in the price of petrol across Australia, with world oil prices slumping dramatically. Prices have already fallen to their lowest levels in months – in some cases by as much as 22 cents a litre. And it could get even better.

West Texas Intermediate (WTI) oil has fallen from over US$98 a barrel to around $US92, since the start of this week, while Tapis crude oil has fallen from over US$120 a barrel to around US$111. (If you've ever wondered why there are different prices quoted for oil, it's because not all oil is the same, and higher prices are quoted for oil that can be more easily refined into higher value products such as petrol, diesel and jet fuel).

The reason for the oil price fall appears to be comments from the world's largest oil exporter, Saudi Arabia. Saudi oil minister Ali-al Naimi last week said the country was ready to take action to calm rising prices, which he said were not supported by market fundamentals – in other words, supply and demand.

Oil had been steadily rising, and surged to four-month highs following the US Federal Reserve's announcement of further quantitative easing.

Petrol prices in Australia are mainly determined by the price of fuel in Singapore, as 15-20% of our fuel is imported from there. Singapore is the regional refining and distribution centre for the Asia-Pacific region and one of the world's largest.

What you may not know is that the Australian government charges two taxes on every litre of petrol. Whether it is imported from overseas or made here in Australia, an excise tax of 38.14 cents is collected by the Australian government. Once the retailers have added their margin and freight costs, the government then levies the 10% GST on top. All up, consumers pay around 50 cents in tax for every litre of petrol they buy.

Caltex Australia Limited (ASX: CTX) supplies much of Australia's fuel through its own service stations, as well as through independents and Woolworths Limited (ASX: WOW) branded service stations. Competitor Coles – owned by Wesfarmers Limited (ASX: WES) – has a similar agreement in place with Shell. There were approximately 6,500 service stations in Australia in 2007, but that number has been declining rapidly. Woolies and Coles currently operate around 1,200 service stations between them.

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Motley Fool writer/analyst Mike King owns shares in Woolworths. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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