Petrol prices spike – here to stay

Prices rise, but don't appear justified

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 October 19, 2012 10:58 am AEDT

Petrol prices jumped by more than 20 cents a litre at some service stations yesterday, and experts warn that we should "get used to it". Prices for unleaded petrol hit $1.56 per litre, and prices may rise even further today, according to Fairfax media.

ACCC Petrol Commissioner Joe Dimasi has called yesterday's price surge "crazy". While the ACCC had been expecting higher peaks because of a significant rise in imported petrol, Dimasi says they weren't expecting price rises like this.

Australian Automobile Association executive director Andrew McKellar has told Fairfax media that the price increases of around 20 cents a litre in both Melbourne and Sydney, were not justified by international refined product prices or exchange rates.

Caltex Australia Limited (ASX: CTX) and other petrol importers like BP and Shell generally base their wholesale prices on Tapis crude oil, and Singapore refined petrol. But the price of Tapis oil has fallen from US$124 a barrel in August to US$116 overnight, suggesting that Australian petrol prices should be falling, especially with the Australian dollar strengthening against the US dollar in the last week.

Some commentators have suggested the price rises are due to industry greed. The problem is finding out who's taking the extra margin. Is it the importers, the refiners like Caltex, or the service station owners like Woolworths Limited (ASX: WOW), or Coles – owned by Wesfarmers Limited (ASX: WES)?

Foolish takeaway

Just four weeks ago, we suggested lower petrol prices were coming, thanks to the fall in Tapis crude oil. That obviously hasn't occurred, and it seems that some companies in the petrol supply chain are taking advantage of motorists. If you have to buy petrol – put it off until next week if you can – prices are predicted to fall then.

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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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