Is it a fair price at the petrol pump?

By Staff Reporter

1 comment

Are New Zealanders paying too much for petrol? The Automobile Association has set out to find whether motorists are getting a fair deal.

The price we pay for a litre of petrol is made up of the following:

* The imported cost of the petrol.

* Taxes (fuel excise, ETS and GST).

* Transportation costs.

* The importer margin (the operating costs of the oil companies, plus their profit margin).

Typically, about 40 per cent of what we pay at the pump is the imported cost of the petrol and about half is tax.

This is made up of 59.13c a litre in excise tax, 3c a litre for the Emissions Trading Scheme (ETS) and 15 per cent GST. So if petrol cost $2 a litre, just more than 92c would be tax.<inline type="poll" id="4357" align="outside"/>

"The tax take may sound excessive but it is worth noting two things to put it in context," says AA PetrolWatch spokesman Mark Stockdale.

"New Zealand actually has the fifth-lowest fuel tax in the world and all of the excise tax is spent on our road and transport system

"However, motorists currently pay GST on the excise tax and then GST again on the overall petrol price, and the AA continues to campaign for the Government to remove this tax on a tax, which would drop the price of petrol by about 8c per litre."

The AA calculates that the importer margin averages about 20c a litre, regardless of what the pump price is.

The pump price of diesel is made up differently to petrol. There is no excise tax on diesel; vehicle owners pay annual road user charges instead.

The imported cost of diesel makes up about 60 per cent of the pump price, with the remainder being transportation costs, GST and importer margin.

Diesel prices can also move separately to petrol because of seasonal demand (it is used as a heating fuel in some countries) and global demand for heavy-transport fuel. So how do oil price movements affect pump prices?

If the international price of a barrel of oil goes down, it doesn't mean that prices at the pump will follow suit.

The oil price that appears in the media is that of crude oil, whereas petrol is made from refined oil which has a separate price.

Supply and demand influences this price - so do speculative financial traders. The exchange rate also has an effect.

Oil and fuel prices are set in US dollars. A higher Kiwi dollar keeps prices lower at the pump; a lower dollar is likely to push them up. The general rule of thumb is that a 1c movement in the currency equates to a 1c a litre change in the pump price - but this can't be looked at in isolation.

Currency values and commodity values (like oil) are related, so a rise in our currency could be matched by a rise in the price of refined oil, cancelling out any change in petrol prices. But are we paying too much?

It might be cold comfort, but New Zealand has the fifth-lowest fuel prices out of 27 OECD nations. The only ones paying less at the pump are Mexico, the United States, Canada and Australia.

The likes of the United Kingdom, Germany and France pay the equivalent of about $2.40 a litre, and in oil-rich Norway the price is about $2.90. The reason for the substantial difference is fuel tax. Motorists in Japan, Korea and across much of Europe pay more tax than New Zealanders, while those in the US and Mexico pay very little.

Australian motorists are paying about A$1.45 ($1.88) a litre for 91 octane. But convert it to New Zealand dollars, allow for the lower fuel tax and GST rate in Australia, and the pump price would work out at about $2.10, basically the same as what we're paying.

Do prices go up faster than they come down? An independent review published in July 2008 by local energy consultants Hale & Twomey concluded that "retail prices go down as quickly as they go up", and the AA's own robust monitor, PetrolWatch, has found the same thing.

"The AA monitors commodity price, exchange-rate movements and retail-price changes on a daily basis," says Stockdale. "Our independent analysis shows that retail prices usually drop faster than they rise.

"It tends to take three days before a rise in commodity prices is passed on at the pump, but when there's been a big drop in oil prices the fuel companies want to be seen to be quick to pass that on."

Another common point of contention is that the price is the same at rival petrol stations. "It's no surprise when you consider fuel companies are buying fuel from the same source at the same price, with the same distribution costs and similar overheads," says Stockdale.

"Given that the net profit margin on fuel is about 3c a litre, there is little room for price variation and as soon as one company drops prices the others quickly follow suit, as they can't afford to be out of line or motorists will shop elsewhere.

"The AA often sees attempts by one retailer to raise prices which is not supported by the market, and they are forced to lower them within hours. That is the competitive market at work."

Gull service stations tend to have prices a few cents a litre lower than the likes of BP, Z, Mobil and Caltex - but Gull's fuel includes a proportion of ethanol, which reduces costs through a 5c a litre tax subsidy.

But every driver has the power to substantially reduce their fuel bill.

A joint project between the AA Research Foundation and Energy Efficiency Conservation Authority found that drivers could reduce their fuel bill by 5 per cent or more, simply by driving smoothly with less hard acceleration and braking, keeping tyres fully inflated and not carrying unnecessary items.

A 5 per cent saving is the equivalent of paying 10c less per litre.

More fuel-saving tips can be found at:

- Hamilton News

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