Factors driving up cost of fuel

WHEN you buy snacks at the service station, you might well be lowering fuel prices.

WHEN you buy snacks at the service station, you might well be lowering fuel prices.

In Tweed Heads, fuel is more than 10 cents a litre cheaper than in Grafton and Professor of Business at Sydney University Tony Webber said the most likely cause was business conditions on the Tweed - not freight as we traditionally would have thought.

Mr Webber said there were four main drivers behind low bowser prices and none of them had anything to do with freight.

The first factor is the number of service stations in a local area.

"If you drew a big circle of, say, 10km around a service station, then the more petrol stations there are in that area, the lower the fuel prices tend to be," he said.

The second factor depends on whether or not you live in a wealthy area.

Mr Webber said fuel was often priced on people's capacity to pay for it.

"For example, fuel in northern suburbs of Sydney is often dearer than in the western suburbs because people in the north are assumed to be more able to pay a higher price."

Cost of fuel in Tweed Heads South.

The third factor is the old weekly fuel cycle.

"The service stations know people will need fuel at the start of the week to get to work and at the end of the week to get around on the weekend," he said.

"This is called yield management. So in the same way as airlines charge more for tickets the closer you book to when you want to fly, petrol stations charge more when they know you need fuel."

But the fourth factor is service stations aiming to make money out of the snacks you buy, not the fuel.

"If you buy $40 worth of fuel the station would only make about $1 or $2," he said.

"But if you buy $6 worth of snacks and drinks then the amount they make out of that will be a lot more."

Mr Webber said the most likely factor driving lower prices on the Tweed, and in metropolitan areas, was the service stations selling petrol cheap in the hope of boosting sales in the store.

Originally published as Factors driving up cost of fuel