Queensland’s Labor government turned heads last week with a bold new election promise. If returned to power, it would set up 12 state-owned petrol stations and limit fuel price rises to just five cents a litre on any given day.
The proposal certainly tapped into a pain point for Queenslanders – Brisbane topped national petrol price rankings last year.
But it was quickly met with a predictable pile on from opposing political commentators, industry bodies and some economists, attracting labels like “risky” and “dumb and stupid”.
Mark McKenzie, chief executive of the Australasian Convenience and Petroleum Marketers Association, called it a “wildly bizarre intervention” in the retail fuel market.
So is the Queensland premier really out of his mind, trying to win votes less than three months out from an election? Or is there actually some merit to this proposal?
Yes, they do. If you’re not Australian, you might not be familiar with the petrol price cycle that we experience. It’s a completely artificial thing driven by profit-seeking behaviour. In Perth it’s an extremely regular weekly cycle. In other capital cities it varies between under 20 and over 60 days from one peak to the next peak.
How exactly it started is a mystery, but the cycles themselves are self-reinforcing, once underway. Petrol stations in a city might start out equally-priced, but then one decreases the price slightly to give themselves a competitive advantage. Others then drop theirs to match, until someone else then drops it further. This repeats over and over, little by little, until it reaches a point that’s so low someone says “nah we’re done” and skyrockets the price way back up to the top, expecting (correctly) that everyone else will follow. And the cycle begins again. It has nothing to do with the actual global market for oil or any other costs of providing service or change in demand.
It’s basically a legal form of collusion. Because they don’t have to communicate through words, just by price signals.
This article is primarily about a plan to create a state-owned servo, which could help break the cycle by providing one much more stably-priced servo that they could just decide would not follow the cycle. But additionally, they also have a plan to cap the daily price increase, which could break the cycle by stopping the part where they skyrocket up to the top. If they wanted to keep the cycle going, they’d have to gradually go up the same as they gradually go down. Which might decrease the profitability of the cycle.