Recent News - As At 1/02/2012
MORE INFORMATION RE WORLD PRICING & GOVERNMENTAL RESPONSE.
FROM THE AUSTRALIAN PETROLEUM MARKETER NEWS.
(Inserted 1/02/2012)
THE OUTLOOK FOR WORLD OIL PRICING
STILL UNCERTAIN
The possibility of a significant world oil price spike remains a distinct possibility.
Tensions in the Middle East, the Iranian threat to close the Straits of Hormuz, through which 20% of the world‟s oil supply flows, the banning of oil imports from Iran by Europe, are all issues that have the potential to cause a significant price spike in the short term.
Australia's airlines – Qantas and Virgin, have already budgeted for a 30% increase in world oil prices in the coming twelve months.
Placing that in perspective for petroleum marketers, particularly for Australian wholesalers and retailers that will represent a 30% increase in debtors and inventory costs.
Placing it under even closer scrutiny, - for an average small to medium distributorship holding say a $5million debtors ledger, a 30% increase will require an additional $1.5million dollars to service the increased debtor ledger requirements.
Obviously, such market demands indicate that the time is now, to batten down the hatches and tidy up any debtor overdues and endeavour wherever possible, to reduce debtor ledgers, or even have them removed from the Balance Sheet through outsourcing.
However, the European Sovereign Debt crisis is having the effect of reducing oil demand and thus softening
the rate of price escalation. So too, the continued strength of the Australian dollar is assisting dampen petroleum price escalation.
Interestingly, Australian wholesale pricing for diesel throughout January has remained much the same, with ULP wholesale pricing increasing by around 3.70cpl.
Consumers within the retail market are copping a double hit in pricing increases with margins being increased as the major supermarkets lead the charge to cover anddeceive their customers, through their increased loyalty rebates – now ranging between 4cpl and 30cpl.
With the impotent ACCC Petrol Price Commissioner now seemingly adopting the stance of “what is wrong with that?”
Retail price manipulation through the manipulative “price cycles” now being a permanent feature of our petrol markets, with the two major supermarkets seemingly acting with impunity by increasing their loyalty discounts to whatever level they choose in their restrictive “cross subsidisation” processes.
Such activity will continue to decimate the independent marketers, the true essence of sustained competition within the Australian petrol markets.
The need for a Petroleum Industry Ombudsman will perhaps one day dawn on the regulators, although the past reaction to such a suggestion would seem to indicate we should not hold our breath until it happens.
MINISTER FERGUSON’S RESPONSE
TO OUR WRITTEN CONCERNS
ON DAYS COVER FOR DIESEL & PETROL
IS DISAPPOINTING
Regular readers of APMN will know we have been expressing concern relative to the deteriorating “days cover” for diesel and petrol in Australia. The current November 2011 “days cover” for diesel is (14) days, which is nearly 7% less than the previous year, with petrol having (17) days cover, which is 13% better than the previous year. (Refer to further comments in this issue)
Even a small interruption to Australia‟s supply line will create shortages which have the potential of seriously damaging our economy.
This editor wrote to Minister Ferguson on the 7th of October 2011 and finally received a reply on the 4th of January 2012. The reply, hived off by the Minister to one of his Advisors, seemed to indicate that we did not have a grasp of the overall issues and did nothing to address our specific concerns.
We reprint the memo:
From the Office of the Hon Martin Ferguson AM MP:
4th January 2012.
Thank you for your letter of the 7th of October 2011 to Martin Ferguson concerning the security of Australia’s refined petroleum product supplies. The Minister has asked me to reply on his behalf, and I apologise for the delay in responding.
The Australian government takes energy security very seriously, including the security of supply of refined petroleum products. The Government closely monitors developments in domestic and global markets for liquid fuels and independently evaluates the risks to Australia’s current and future energy security.
The Australian Government utilises a range of sources to inform analysis on energy, including the International Energy Agency (IEA) and Australia’s own geological, scientific and economic forecasting institutions.
The most recent analysis of Australia’s liquid fuels security is included in the National energy Security Assessment (NESA)2011 and associated material, which is available at www.ret.gov.au
Thank you for taking the time to write to the Minister. I trust this information has been of assistance to you.
Joel Grant
Adviser – Energy
We still have a problem with our Energy Security and we will continue to draw attention to the issue.
DIESEL PRICE NOTES FROM THE AUSTRALIAN INSTITUTE of PETROLEUM - A.I.P.
(Inserted November 2011)
FACTS ABOUT DIESEL PRICES
The price of diesel in Australia is dependent on international market prices, not production costs
- Crude oil, diesel and petrol are different products and are bought and sold in their own markets.
- Each market is regionally based and there are linkages and transactions between regional markets.
- Diesel prices in regional markets reflect the supply and demand balance in each market.
- So, diesel prices (like most commodity prices) are determined by market forces, not by the cost to produce it.
- Australia’s regional market is the Asia-Pacific market.
- Diesel is the dominant fuel in the Asian region and in recent years there has been a significant increase in demand, particularly as a result of the economic and industrial growth in China and India; Australian demand for diesel has also grown strongly, particularly on the back of the mining and commodity boom.
- Regional diesel supply has not kept pace with this demand growth and, as a result, diesel prices have increased in the region including Australia.
- The Singapore price of diesel (Gasoil 10ppm sulfur) is the key diesel pricing benchmark for Australia.
Australian refineries must price their output to be competitive with Asian imports
- To meet Australian diesel demand, over 40% of diesel is currently imported - mostly from Singapore.
- Australian refiners must price diesel to be competitive with imports (ie. import parity) from the Asian region; if diesel prices were lower here, this would provide an incentive to Australian refiners to export diesel to Asia.
- Growing demand for diesel in Australia will continue to be largely met by imports in the future, further strengthening the price relationship with Asian diesel prices.
- The Australian wholesale price for diesel (called Terminal Gate Prices or TGPs) is closely linked to the Singapore price of diesel - not crude oil prices.
- The Singapore benchmark price of diesel plus shipping costs and Australian taxes represents almost the entire wholesale price of diesel - around 95% of TGPs.
- The remaining 5% of TGPs reflect insurance, local wharfage and terminal costs and a small wholesale marketing margin (where competitively possible).
- Generally, there is a short time lag of 1-2 weeks between changes in Singapore prices and changes in Australian TGPs, and this lag operates when prices are both rising and falling.
- Daily TGP data are published by all wholesale suppliers (AIP website has average TGPs - www.aip.com.au/pricing/tgp.htm).
Most diesel is sold in bulk through commercial contracts, not through retail outlets
- TGPs are typically around 95% of the diesel pump price. Apart from TGP, pump prices in Australia also reflect land transport costs, marketing and administration costs, and the costs of running service stations like wages, rent and utilities. The ability to cover these costs depends on local area competition.
- Most diesel is sold in bulk to commercial and industrial customers (eg. in mining, transport and farming) on long term contract; such contracts are subject to rigorous competition under regular market tenders.
- There is no retail discounting cycle (ie. sawtooth pattern) for diesel, as only 25% of diesel is sold through retail outlets and most of this goes to contract or fuel card customers rather than private motorists.
- The major oil companies only set retail prices at a limited number of service stations across Australia (around 8%) and these are largely in metropolitan areas.
Low sulfur diesel is a high quality fuel and delivers more kilometers per litre than petrol
- To meet the low sulfur fuel standard for Australian diesel (10ppm sulfur from 1 January 2009) requires extensive processing in the refinery to remove the sulfur from the crude oil, similar to that required for low sulfur petrol.
- Tighter diesel fuel standards are delivering dramatic reductions in vehicle emissions (including particulate emissions and black smoke), providing significant air quality improvements in major cities and towns.
- Because diesel has a higher energy content than petrol, it delivers more kilometres for each litre of fuel consumed (particularly when used in new efficient diesel engines).
Australia's highly competitive market has delivered low diesel prices by world standards
- When comparing Australian diesel prices to other countries, allowance must be made for different government taxes and tax rates and for any subsidies and road user charges (eg. in New Zealand) that don’t apply here.
- Vigorous competition in Australia also means that oil company profits are typically a very small proportion of the retail price (eg. average oil company profit over the last decade is around 1.7 cents per litre of fuel sold).
DIESEL PRICING
17/11/2011 - Letter from Robert Riordan.
These notes will be sent to you in letter form as well.
"The latest International Market Watch on crude oil and petroleum products show recent movements in international benchmark prices for TAPIS crude and the resulting diesel and petrol prices in Australia, for reasons that are unknown to us,are going "through the roof".Whilst petrol is the complete opposite to diesel, we bring to your attention the wholesale price of diesel whichhas been forced up since 1/11/2011 by 4.00 cpl and on present indications will go up further. We regret informing you of this situation but trust that it will assist you with your own costings and pricing in your business. We are most reluctant to have to pass on some of these increases and can assure you that any reductions will be passed back to the market.
Trusting this infomation is of assistance,
Regards,
Robert Riordan."
Notes -
- TAPIS crude oil is the stock which is the Australian benchmark for pricing as it covers the Asia/Pacific region, based on a Singapore pricing system known as "PLATTS". We do not fall under the ambit of West Texas Crude which is the crude oil price generally quoted in the media.
- Taking into account the rises and falls since April 15th, the situation has now reversed and the nett increase in the prices to date (16/11.) is 2.98cpl. Take into account the aforementioned drop of 8.09cpl and you have a real terms increase of 11.07cpl. Add also the rise between October 2010 and April 2011of 31.13cpl and it can be seen that there is an urgent need on everyone (particularly the transport industry people) to adjust rates on their products/services to cover this large price rise.
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30/07/2011
The price of diesel has been fluctuating frantically over the past few months and in fact between 1st October 2010 and 15th April 2011 the price went up 31.13 cpl. This was due to the rise in price of crude oil on the international market, because of troubles in the Middle East and if the A$ had not been so solid then there is little doubt we would have been paying in the order of $1.75 cpl for diesel.
Since 15th April there have been further fluctuations with a nett drop of 8.09 cpl to date, this helps the situation no end.
Prices through our Card Acceptor tanks are published on this web site under the tab"Tank Price" which is updated whenever prices are altered.These do not include any rebates that may apply to large commercial customers.
As more worthwhile infomation is gathered we will publish it on this site.