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Petrol prices tipped to hit $3.00/litre, but a few things would need to happen under the hood before we get there

Personal Finance / news
Petrol prices tipped to hit $3.00/litre, but a few things would need to happen under the hood before we get there
Fuel gauge
Image: Paul Schadler. Licence: CC BY 2.0

Fuel commentators predict prices could reach $3.00 per litre (p/l) for regular unleaded 91 in the not-too-distant future, but this would be reliant on some fairly significant shifts in some of the other figures behind the scenes.

The calculation of the consumer petrol price in New Zealand starts with the cost of oil per 159-litre barrel which is always quoted in $US and converted to $NZ using the exchange rate on any given day.

Various Government taxes and levies piled on top make up the lion's share of the price consumers pay at the pump and the rise and fall over time can mostly be attributed to changes in these taxes.

The latest rates for these taxes, obtained from the Ministry of Business, Innovation & Employment (MBIE) are:

Type of tax Tax amount per litre
National Land Transport Management Fund:
for funding roads and infrastructure)
70.02c
Accident Compensation Corporation (ACC) levy:
towards the cost of accidents on public roads)
6c
Petroleum Fuels Monitoring Levy 0.59c
Local Authorities Petroleum Tax 0.66c
Emissions Trading Scheme (ETS) Tax:
the Government's main tool for reducing greenhouse gas emissions
16.63c
Regional fuel tax (Auckland only)
To fund transport projects in the Auckland region
10c

The other big tax, of course, is GST at 15%.

Local fuel retailers must also cover their overheads. This 'oil company component' equals the difference between the consumer pump price and the barrel price plus all the applicable Government taxes paid above.

The overheads include refining, domestic distribution and retailing costs and a portion of it is the fuel retailer's profit margin or around 3 to 5 cents p/l. 

The below chart shows the variance in pump prices over time as well as the oil company component:

Oil and Petrol

Select chart tabs

Source: MED
Source: MED
Source: MED
Source: MED
Source: MED
Source: MED
Source: MED
Source: MED
Source: MED

For kiwis to see price rises at the pump a number of adjustments further back in the equation would need to occur andcould include the following scenarios:

  • A rise in the per-barrel price to US$100, as it is tipped to reach due to tightening supply and Omicron disruptions.
  • The $NZ falling to 66USc: Westpac strategists said they had a 'trade idea' to sell the NZD at that rate
  • The ETS tax rising to 25c/pl: As per MBIE, it's risen from 9.96 c/pl in June 2021 to 16.63 c/pl currently, so a jump this size is is not out of the question.

Starting with the current per litre price of fuel, even if all three scenarios were piled on the price would still stop short of $3 per litre, even in Auckland.

The chart below shows the incremental impact of adding each scenario to the pump prices for Unleaded 91 in both Auckland and the rest of New Zealand. 

Sometimes described as a 'grudge purchase,' and keenly monitored by many motorists, there are still some fairly significant changes we would need to bounce through before it's time to grumble about paying north of $3 at the pump.

Price sensitivity per scenario AKL U91 change NZ U91
  $/L c/L $/L
current prices, per MBIE $2.638   $2.523
1. if FX goes to 66 USc, price rises by    1.59  
  $2.654   $2.539
2. if crude goes to US$100, price rises by   22.24  
  $2.876   $2.761
3. if ETS goes to 25c/L, price rises by   9.63  
  $2.973   $2.858
Assuming:
Oil company component stays unchanged
Retail discounts from present unchanged

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18 Comments

Straylia's, looking good all over again. lol.

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Which state though? There's so many variables including the industry you work in, the climate, political instability and the governorship you wish to live under. 

If it were Delta variant rampant in AU, NZ would be better off. If it were Omicron or a less severe variant spreading, AU would be better off. Until the pandemic ends, it's hard to make a longer term decision. 

Every Sydneysider knows that the economy is the number one priority of everyone which is why the NSW premier needs to keep the economy open as much as possible because people's livelihoods are at stake otherwise, Sydney will become a hotbed of crime and to compensate, the NSW government will implement immediate lockdown if a deadly variant emerges. 

It's a psychological double bind; "you're damned if you do [move to AU] and damned if you don't" and you also have to account for the moving cost. 

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The tax table above demonstrates how double taxation works.

  • ACC is collected on both fuel and rego- your lawn mower is covered from causing accidents on public roads.
  • Local authorities in charge of petroleum can't monitor petroleum and needs another department fully paid to do it.
  • ETS taxes can somehow convert CO2 to something else.

$3.00/L is achievable in my opinion, since the above assumptions made in the article omitted greater factors.

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What are these 'greater factors'? Secret only to you?

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Actually there's no secret at all; I just find the article could had been better researched.

The obvious white elephants are,

  • Geopolitical risks;
  • OPEC; and
  • Logistical challenges.

Enjoy your day.

 

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Tax what you want less off, subsidise what you want more of.  Carbon tax. 

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Lawnmowers cause accidents too. Almost everything that uses fuel is by its nature potentially dangerous. but probably not as much as alcohol, which has no Acc levy/ 

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It doesn't need one, because alcohol has a specific levy on it to pay for the costs of alcohol harm.

Ditto tobacco.

 

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Driving consumers to Electric cars.  
 

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Guess that's where the EV subsidies comes from....

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Three dollar petrol price is premature....once upon a time 4% inflation was a premature and now we have.....

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Once upon a time inflation was 26% under a National government, and you had to get permission to import a new car.

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Sorry, but $3/lt pump price is certainly possible and would be beyond the retailers ability to restrain.  After all, hasn't it gone up at least 60c/lt  over the last year without either crude or the Kiwi dollar doing anything really spectacular?  We are still well short of the crude oil prices as they were as recently as 2011 (they were then consistently > $100/bbl) and whilst Toby's article acknowledges crude prices at this level, it just relates these to supply restrictions and Omicron factors.  There are other factors ('general factors' ??) that can see crude oil prices jump very quickly, such as the threat of a global conflict or a strategic cut back in production by a major producing country (perhaps using their production dominance as an economic weapon). As Toby says, the other main determinant in our retail pricing is the value of the Kiwi dollar against the US dollar.  If our cross rate were to fall (as it is, although still modestly) whilst crude prices continue to rise then the pump price has to keep going up and up.  This could take place quite quickly if crude prices v exchange rates play badly against us.  Of course the more the base price of our refined petrol goes up, the more GST we have to pay per litre which will assist the climb to $3/lt. The other taxes levied on our petrol (and it still annoys me that we pay GST tax on these taxes) have gone up a lot under Ardern and are scheduled to increase further, although by themselves they are not major factors in the pump price possibly reaching $3/lt.

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Crude was $ 57 in jan21. $ 85 today . nothing spectacular???

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Apparently already hit $3 litre+ on Waiheke... saw this shared on Facebook - photo of the news https://ibb.co/LQpdY07

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Its already as good as $3 a liter for 98 in Auckland, who runs a car on 91 these days ? Modern performance engines need at least 95.

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New Zealands preferred daily hack seems to he a 20 year old Toyota and that has no issues running on 91.

Obviously wealtheir Kiwis will just be able to buy EVs or Hybrids so side-stepping fuel price inflation. This is a tax predominantly on the rural and suburban poor.

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Most suburban poor are driving Japanese imports that run on 91, I'd guess.

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