The price of petrol at the pump is high because of oil company retail pricing decisions.
Local oil company retailers are pocketing some of the gains from the falling crude price.
As the crude oil price continues to fall dramatically, prices at the pump have declined.
But they have not fallen as far as they should have.
MBIE maintains a weekly monitoring service of retail Unleaded 91 prices and some of the components built into the pump price.
The following analysis uses that data (crude prices and excise taxes), and applies current exchange rates and GST to derive the "oil company component" to import, refine and distribute petrol to our local petrol station.
In our analysis, the "oil company component" is not the same as the oil company margin. "Margins" imply profit and that is not knowable. Oil retailers also buy or price refined product based on international benchmarks, our's usually retailed to a Singapore refined price benchmark. But they have options and their final margin has always been included in the "component".
|What you are paying for at the pump ...||Actual||Could be||Should be|
|US$ crude oil price / barrel||$45.00||$45.00||$45.00|
|@ Today's exchange rate||0.7830||0.7830||0.7830|
|equals NZ$ crude oil price / barrel||$57.47||$57.47||$57.47|
|or NZ$ crude oil price / litre||0.3615||0.3615||0.3615|
|+ Excise taxes per litre ...|
|• National Land Transport Fund||0.5652||0.5652||0.5652|
|• ACC levy||0.0990||0.0990||0.0990|
|• Petroleum or Engine Fuel Monitoring Levy||0.0005||0.0005||0.0005|
|• Local Authorities Fuel Tax||0.0066||0.0066||0.0066|
|+ Oil company component (import, refine, distribute)||0.4707||0.4000||0.3000|
|+ GST at 15%||0.2255||0.2149||0.1999|
|= Price per litre at the pump - Unleaded 91||$1.7290||$1.6488||$1.5327|
The core reason we pay too much for petrol has turned from being the taxes we impose on ourselves (the Excise taxes, plus the GST), to the share the oil company retailers are keeping from their trading.
Until 2010, this industry was fiercely competitive. Over the previous six years, the oil company component averaged 30c per litre of the pump price. It did move around, but competition kept it coming back to this long run average.
Then in 2010, Intratil and the NZ Super Fund bought the Shell retail distribution network. Margins did not move much for a while (they rose to about 32c/litre over the first year), but then they started a relentless climb.
|Oil company component ...||NZ$ / litre of the|
|(import, refine, distribute)||Retail pump price|
|2014 - first half to June||0.4597|
|2014 - second half from July||0.5165|
Over the five years 2006 to 2010, the oil company component went up just +5.5% or about +1% per year.
In the five years 2010 to 2014, the oil company component went up +62% or an average of +12.5% per year. The average is interesting, although you can see from the table above that most of the increase has come in the past two years, and the fastest rise has been over the past year.
If the oil company retailers stepped back from their aggressive pricing to live on "only" 40c per litre as they were able for the whole period to 2012, our pump prices would fall by 10c/litre at the pump.
If competition sent margins back to the long-run average of 30c per litre, prices below $1.60/litre would be possible right now.
According to data released by Infratil when they purchased the Shell distribution system in New Zealand, the retail petrol market is dominated by two retailers; Z Energy with about 29% market share and BP with about 28% market share. Mobil, Caltex, Gull and a few minnows supply the balance. On a per household basis, consumption of petrol and diesel is not growing. In fact 2014 may have seen it back to 1989 levels or about 1,150 litres per year per household. Fuel efficiency is rising faster than distance travelled.
All up, total supply is a bit more than 2 bln litres of petrol per year.
There does seems to be room for a new entrant to compete on price.
As you drive around your neighborhood, if you see pump prices below $1.70/litre, please email us a photo, location and a date and we will post them here for readers information.
Auckland central prices on January 18 2015
Albany, Auckland , January 16, 2015