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SPECIAL REPORT: Petrol price fall warranted - AA

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With the fuel price pendulum fluctuating constantly, filling up can be a daunting experience for cash-strapped motorists. Brendan Manning investigates the petrol price market and asks whether we're being overcharged at the pump.

Petrol prices dropped 4 cents a litre last week, giving a welcome reprieve to motorists.

But AA Petrol Watch spokesman Mark Stockdale says it's not enough after fuel prices neared record highs in February and stung Easter holidaymakers.

Five years ago, Kiwi car owners were paying $1.40 for a litre of 91 octane. The same litre of petrol set us back $2.17 last week in the main centres.

So what's behind the rise and how is the painful increase hitting ordinary New Zealanders?

Retail fuel prices have not been dropping "far enough, or fast enough", Mr Stockdale says.

Following a decline in international commodity prices, the price of 91 octane fell 4 cents to end March at $2.17 per litre in the main centres. Diesel fell 3 cents to $1.52 per litre at most service stations.

But some "lucky" motorists could still fill up for just $1.99 a litre last week (at BP and Gull in Auckland), while most other retailers were charging between $2.16 and $2.18. Caltex on the West Coast was charging $2.32 for 91 octane last week.

Mr Stockdale says aggressive discounting at the pump is happening in specific areas, particularly in Auckland, Whangarei and Rotorua.

Yet nationwide, retail prices are just a few cents per litre less than at the same time last year.

While the price of oil fell by up to US$10 ($11.89) a barrel during February and March, the price of refined petrol and diesel fell only about NZ$7 a barrel - roughly equating to a 7c per litre decrease at the pump, according to AA.

"Fuel companies have been slow to pass on these lower costs, and have not gone far enough," Mr Stockdale says.

"Going by recent trends, the importer margin - the difference between retail prices and import costs - is well above average and a further pump price cut is overdue."

AA believes a cut of 3 cents for petrol and 5 cents for diesel is still warranted.

Why so dear?


 


 


The pump price we pay is based on the commodity price for refined fuel - petrol and diesel.

A rough guide is a $1 change in commodity prices equals a 1c change in pump prices.

When commodity prices fell briefly to US$37 a barrel in December 2008, when the global financial market collapse began, we were paying just $1.40 at the pump.

The price of refined petroleum has now jumped to US$130 a barrel, which in turn has hit Kiwi motorists with higher fuel costs, though we have been cushioned from the full financial effects thanks to our strong New Zealand dollar.

The cost of a litre of petrol at the station is made up of the imported cost of the petrol, taxes, shipping costs and an importer margin.

Typically, about 40 per cent of the pump price is the actual cost of refined petrol, while up to half is tax.

The retail price of a litre of diesel is made up differently. Since there is no excise tax on diesel (road-user charges apply instead), the imported cost of diesel represents over 60 per cent of the pump price, with the remainder being freight, GST and importer margin.

While many motorists bemoan the cost of filling up, at least New Zealand has the fifth lowest fuel tax in the world - in many OECD countries, taxes account for around two-thirds of the price.

Even when our exchange rate is worth less, we still enjoy some of the lowest fuel prices in the Western world - only Mexico, USA, Canada and Australia have lower pump prices.

Although New Zealand produces and refines its own crude oil - most of which is exported - Kiwi motorists don't receive discounted petrol as a result. This is because the Government does not subsidise petrol, unlike other oil-producing countries such as Saudi Arabia and Iran.

Meanwhile, trying to predict petrol price movement is "crystal ball gazing", Mr Stockdale says.

Global commodity fuel prices have remained stable because the recession has kept a lid on international oil demand, he says.

"Once the world recovers from the recession, then demand for goods and services will increase and that will put pressure on commodity prices."

Cost breakdown


 


For every litre of fuel we buy, several different tickets are getting clipped. Here's the breakdown:



  • Refined fuel costs - 45 per cent.


  • Fuel excise and emissions trading scheme levy - 28 per cent.


  • GST - 13 per cent.


  • Importer margin - 12 per cent.


  • Shipping - 2 per cent.

Source: AA

How reliant are we on oil?


Modern society is hugely dependent on oil not only as motorists, but also as consumers.

Almost all of our goods and services are delivered using oil, Mr Stockdale says, and many nations still rely on the fossil fuel as a source of heating and electricity.

Food production in particular is almost wholly dependent on oil.

Without it we wouldn't be able to plough fields, harvest food, transport crops for processing and truck the processed food to markets.

Global energy consumption grew by 2.5 per cent in 2011, broadly in line with the historical average but below the 5.1 per cent seen in 2010.

Emerging economies accounted for all the net growth, with OECD demand falling for the third time in the last four years, led by a sharp decline in Japan.

But as the global economy recovers and oil demand increases, so will the price, meaning even higher petrol costs for motorists.

A falling exchange rate would also spell higher fuel prices domestically as can international conflicts with the potential to disrupt global oil supplies.

Mr Stockdale also warns that the world is running out of cheap oil from traditional markets such as Saudi Arabia.

"Those days have gone. It's a finite resource and yet demand is predicted to grow.

"We don't know exactly how much oil there is in the world because we are discovering new sources. But it doesn't change the fact that it is a finite resource."

The new crude oil that is being discovered is expensive. Sources such as deep sea deposits and tar sands oil cost a lot more to extract and are only economic at about US$100-$120 a barrel, which could translate to even higher pump prices.

Pump price fatigue


While many motorists changed their driving behaviour when petrol prices first shot up over $2 a litre, most now seem to have grudgingly accepted the high costs.

After a while, motorists become used to higher petrol prices, Mr Stockdale says.

"If they have upgraded their car and bought a more fuel- efficient car, they've actually noticed that their fuel bill is lower and so maybe they're finding, 'Oh well, I can manage that' and so they're not cutting back on their travel."

However, some motorists have cut back on car journeys, particularly those with older, less efficient cars.

"I think people understand that prices are going to remain high and maybe even rise. There's only so much that they can do to reduce their travel needs, but there is a lot they can do to reduce their fuel bill."

Petrol consumption is currently static, reflecting the efficiency gains in modern vehicles.

"Even if there are more cars on the road, they are using less fuel."

There has been a shift in vehicle purchase preferences in recent years, Mr Stockdale says.

"People have moved away from buying big, family sedans and SUVs and they've moved into buying smaller, more fuel efficient vehicles.

"Just a few years ago, the Holden Commodore was the number one selling car in New Zealand, and it was for many years - that's history now."

Ways to save


High petrol prices are cutting into people's disposable income, making life harder for countless cash-strapped families.

But there are several ways to reduce your weekly fuel bill.

Supermarket fuel discount vouchers provide one avenue.

Supermarkets almost fully fund the vouchers so people are paying for them through grocery prices whether they spend enough to qualify or not.

The AA recommends doing a double-shop to earn a large voucher, or combining shopping with a relative, neighbour or flatmate.

However, fuel dockets aren't the only way to reduce petrol bills.

Regular vehicle servicing, maintaining correct tyre pressure and wheel alignment all make a difference.

A well-maintained car can use 10 to 20 per cent less fuel, the AA advises.

Easing off the accelerator also has its benefits, as lowering the needle on the rev counter will lower fuel consumption.

Travelling at 100km/h instead of 110km/h can cut around 13 per cent off your fuel bill.


What do you think?


Have your say below, vote in the poll, or email your reaction to: editor@bayofplentytimes.co.nz. Please note: responses may be published.


 

- BAY OF PLENTY TIMES

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