There has been a subtle shift in Australian fuel pricing dynamics in recent weeks, with domestic terminal gate prices (TGPs) responding more slowly to movements in Asian oil products markets.
Argus' analysis of fob Singapore non oxy 91 Ron gasoline plus freight to the east coast of Australia values and Sydney gasoline TGP values shows that the traditional four-day lag between international cargo prices and local price adjustments widened to five days since the outbreak of conflict in the Middle East. Correlation between the two series strengthened in the same period, rising from around 0.97 over the last six months to nearly 0.99 over the past three weeks, implying that while domestic price setters took longer to adjust, they tracked the Singapore market with greater precision. Singapore was Australia's largest gasoline supplier last year, accounting for just under 47pc of total imports, data from Vortexa show.
A similar pattern has emerged in diesel markets. The established four-day lag between fob South Korea 10ppm plus freight values and diesel TGPs in Sydney has also stretched to around five days in the latest three-week window. Correlations remained strong throughout, holding near 0.98 in the recent period and broadly matching the longer-term relationship, suggesting that the linkage between South Korean diesel prices and Australian TGPs remains robust despite slightly slower pass through. South Korea was Australia's largest diesel supplier last year, accounting for 29pc of supply to the country, as per Vortexa data. Only around a quarter of diesel used in Australia is sold through retail outlets with much of that sold to account customers. More diesel is sold in bulk to commercial and industrial companies like mining and transport companies.
The Australian Institute of Petroleum has previously said the lag between international oil products prices is the result of using rolling averages. The lag occurs whether the prices are going up or down.
The longer lag period for gasoline and diesel likely reflect supplier efforts to smooth the volatility between Asian price benchmarks and the local Australian market. But the tightening correlations indicate that TGP movements remain firmly anchored to regional product markets, even if the domestic adjustment window has widened modestly.
This relationship could alter slightly in the coming months. The Australian government announced on 13 March that the minimum stockholding obligation is to be reduced for each company to which it applies, to ensure extra supply of gasoil and gasoline flows to regions experiencing shortages. The release of up to 762mn litres (4.8mn bl) of gasoline and gasoil should start to enter the local market in the coming days. Those stocks were purchased at lower international price levels and when combined with cargoes arriving to Australia which were bought at higher price levels, could skew the correlation between TGP and international benchmarks.
Australian fuel suppliers were referred to the Australian Competition and Consumer Commission (ACCC) for increasing fuel prices at retail sites across the country, following the outbreak of the US-Iran conflict. The increase in the average price for regular unleaded gasoline in some cities has exceeded what is expected from higher international prices, according to the National Roads and Motorists' (NRMA), the motorists' lobby for New South Wales state.
