Petrol war: Cost of fuel drops to $2.12 a litre - but expert warns it won’t last long

U-Go self-service stations in Auckland are offering 91 unleaded at $2.23 a litre. Photo / RNZ / Marika Khabazi

By RNZ

Auckland petrol price battles – fuelled by a new no-frills service station on the market – have seen prices drop to $2.12 a litre in some suburbs.

However, don’t expect the big savings to last long, says a fuel price expert.

There are now nine U-Go self-service stations in Auckland, offering 91 unleaded at $2.23 a litre, when the average is about $2.51.

In one Auckland suburb, the cheaper petrol led to an opposition gas station dropping the price as low as $2.12 over the weekend.

But Automobile Association principal policy adviser Terry Collins warned motorists the prices would not last for long.

He said U-Go has entered the market by dropping the price low in a similar way to supermarkets with their loss leaders, where certain products are sold at cost.

“I think they’ve got very close to that margin and a neighbouring Mobil service station, rather than lose clients, responded by dropping their prices.

“If it is around $2.12, I don’t think it’s sustainable, but look, long may it continue if they do want to get into short-term price wars like that.

“I just think under $2.20 is a really good price.”

He told Checkpoint that the stations would be trying things such as larger discounts over the weekend to see what happens with their volume of sales.

“They just want to get some new clientele, it’s a pretty irresistible offer when you offer it at that price.

“I couldn’t imagine it happening every weekend, but we do know they are competitive, they will have specials, they will have discounts, and they’re basically trying to maintain volume in tough economic conditions.”

While U-Go stations are only in Auckland, motorists could expect to see more of them throughout the country, as more Caltex stations are converted to the low-cost model.

“What it’s proven is that these low cost operators, consumers really like them, and now there is a definite niche in the market for them, we’ve got Allied, NPD, Gull, U-Go.

“They seem to be a growing segment of the market which provide cheaper fuel.”

Collins said oil prices on the international market had stabilised around $65 a barrel.

“With the US administration causing a bit of mayhem in the market, there is more bang for buck with US dollars, and oil prices are cheaper around the $60-65 mark.”

Z Energy, which owns the U-Go brand, did not directly respond to questions about whether the lower price was here to stay, saying pricing was localised and could be different at each site, depending on factors such as competition.

- RNZ