The Pricing of ULP and Diesel in the Western Australian Retail Fuel Market

Abstract

This is study of the determinants of ULP and diesel price level and volatility in Western Australia. It draws on Western Australian FuelWatch fuel prices and Australian Tax Office post code level data over the period from 2002 to 2012. As might be expected, crude oil price and distance to the BP Kwinana refinery are important determinants of ULP and diesel retail prices. We find that more heavily populated wealthy post code areas pay higher prices in the Perth region though this is not evident in the regional areas. There is no evidence of prices increasing in search cost or decreasing in price dispersion. Further, cross post code volatility is lower in more populous Perth region post code areas. There is some support for price asymmetry in the diesel market, though this is not apparent in the ULP market. Finally, crude oil price shocks are positively correlated with increased volatility in both the ULP and diesel markets.