Pump prices fuel drivers' angst

Petrol prices dropped four cents a litre last week.

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

Just five years ago Kiwi car owners were paying $1.40 for a litre of 91 octane. Last week in the main centres, a litre set us back $2.17.

Why? And how is the increase hitting ordinary New Zealanders?

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

After a decline in international commodity prices, the price of 91 octane fell four cents to end March at $2.17 a litre in the main centres. Diesel fell three 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 a whopping $2.32 for 91 octane last week.

Mr Stockdale says aggressive discounting at the pump is happening - 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 oil price fell by up to $12 a barrel in February and March, the price of refined petrol and diesel fell only about $7 a barrel - roughly equating to a seven cent per litre decrease at the pump, the AA says.

"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."

The AA would like a cut of 3c for petrol and 5c for diesel.

Why so dear?

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

A rough rule of thumb is that a $1 change in commodity prices equals a 1c change in pump prices. When commodity prices briefly fell to US$37 ($44) 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 ($154) a barrel, which in turn hit Kiwi motorists with higher fuel costs - though we have been cushioned from the full financial effects thanks to a 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, around 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.

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

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

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

Meanwhile, trying to predict 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.

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

Reliance on oil

Society hugely depends on oil - not only motorists, but consumers. Most 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, almost wholly depends on oil. Without it we wouldn't be able to plough fields, harvest food, transport crops for processing and truck processed food to markets.

Global energy consumption grew by 2.5 per cent in 2011, broadly in line with the historical average but well 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.

Meanwhile, Mr Stockdale says the world is running out of cheap oil from traditional markets such as Saudi Arabia.

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

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

Price fatigue

While many road users changed their driving behaviour when petrol first topped $2 a litre, most now seem to have grudgingly accepted the high costs. Motorists became used to higher 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 had cut back on 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.

"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 No1-selling car in New Zealand, and it was for many years - that's history now."

David Bodger, of Gull New Zealand, said: "I think people are using their cars more because petrol prices have been over $2 a litre for some time and they have got used to that price."

Ways to save

Supermarket fuel discount vouchers are one avenue to save. The vouchers are almost fully funded by supermarkets, so you're paying for them in groceries prices.

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

Regular vehicle servicing, maintaining correct tyre pressure and wheel alignment also 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.

Driving at 100km/h instead of 110km/h can cut about 13 per cent off your fuel bill. APNZ

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