Petrol prices are due to fall by about 4c a litre. It is quite simple to calculate what they should be. Oil is a commodity like wheat, meat or aluminium, with its price visible for all to see. There is certainly no oil company conspiracy to keep prices high. New Zealand pump prices rise and fall to match world oil prices and the dollar. The Rule of Thumb says that every $1 movement in the price of a barrel of crude oil increases or lowers our pump price by 1c a litre. A 1c change in the value of the Kiwi dollar against the US dollar does the same.
When world crude prices hit $US100 a barrel in early January, the pump price here quickly rose by 5c a litre, or 175.9c for 91 octane. This was a smaller rise than might have been expected from the size of the crude oil increase, but we were cushioned by a strengthening Kiwi dollar, and, I think, by supermarket discount vouchers which had reached an astonishing 20c a litre on December 22. On January 16, as crude prices fell, the pump price for 91 octane came back by 5c to the current 170.9c.
Crude is now around $US 89 a barrel. Using the 1c rule, that should mean a price fall of 11c a litre from the January 4 high, to 164.9c. But the Kiwi has fallen meanwhile, to about .77c against the US dollar (though it is firming again). So deduct about 2c from the 11c to get 9c. Deduct again the 5c fall of January 16 and that leaves 4c still to come, barring another big movement in either crude prices or the currency.
I remain convinced that oil companies are padding petrol prices by at least some of the face value of supermarket discount vouchers, currently 4c a litre. The supermarkets (or rather, shoppers, through higher grocery prices) will be paying the oil companies for some, if not most, of the discount. But the petrol chains locked out of the discount scheme by New World’s deal with BP and Woolworths-Foodtown’s deal with Shell are matching the 4c discount. Caltex simply accepts all supermarket vouchers, while Mobil gives a 4c discount if you buy some Coke. This strongly suggests the discount is built at least partly into pump prices. No matter. Like the ups and downs of petrol prices overall, that is the marketplace in action.
Many readers probably don’t remember the awful, pre-1984 days when the government set petrol prices (and the prices of many other things, from bread and milk to mortgage interest rates). There was no competition at all. It was illegal to sell petrol at a discount, so it was always sold at the rate fixed by the government, which you can bet was higher than it would have been in a competitive market. The oil companies creamed it.
Back then, crude price rises like the one we had in January put governments in a panic. The (temporary) tripling of crude prices in 1979 after the Iranian revolution saw our government of the day force motorists to keep their cars off the road one day a week, and other bizarre things, including spending $1.8 billion of taxpayers’ money on a plant at Motunui to turn Maui gas into petrol. The plant was so uneconomic that several years after it opened, a later government quietly paid Fletcher Challenge $175 million to take it off the taxpayers’ bleeding hands, and it was converted to methanol production, which was very profitable, but not for the taxpayer. New Zealand was not a better place then, whatever your parents say.
1 Comment
January 25, 2008 at 9:43 am
MED monitor this stuff and any big margin increase you suggest would be immediately obvious and is just not there.
There is a report on the MED website that looks at this which says that margins may have risen 0.5cpl as a result of vouchers but this is offset by the cost of vouchers calculated at about 2.5cpl. So the real margin being earned on fuel has probably dropped but I suspect oil companies are far less eager to price shave as a result to try and hold any margin they do get for longer.
You also forget that the supermarkets are effectively buying in bulk and likely to be getting a discount so may in fact at 4cpl just be passing through that discount. You can get similar discounts through the many clubs and professional groups that have deals with oilcompanies. Chamber of Commerce is one, real estate institute is another.
The margin is not in the fuel it is in the other stuff you might buy, where it can be >30%, hence the Mobil scheme.