Petrol has passed the $2 barrier. Out my bus window homebound tonight, the price board on the local Mobil (my BP’s sign remains absent) showed 91 Octane is now 200.9c a litre, or $2.009 if such a figure looks impossibly unfamiliar.
What a difference 12 hours makes. When I awoke this morning, world oil prices had reached $US 133 a barrel overnight, $US 6 more than when 91 Octane reached 196.9c a litre at New Zealand petrol pumps on Monday. I thought that would quickly translate into 5c a litre more at the pump. But this fast? Most recent rises have taken days or weeks to translate from oil prices to the pump, not 12 hours.
However, today’s rise was only 4c. Insider, who often posts accurate comments on this issue on this blog, says it could have been as much as 8c, given the way oil company margins have been squeezed by the rapid rise in world oil prices.
“Some will not be wanting to go over the emotional limit of $2,” Insider said in a comment posted today. “But you can’t put off the inevitable forever. They should go now, use the budget as cover so that the emotion gets pushed to one side and a new reality is established.”
The oil companies must have been listening to Insider!
12 Comments
May 22, 2008 at 8:56 pm
How much actual influence does real-time currency fluctuations matter in the consumer price of oil? Aren’t these things mitigated by hedges and speculation by oil companies anyway?
And I swear I’ve read somewhere that oil companies are making record profits. How does one get growing profits AND a margin squeeze?
May 22, 2008 at 9:41 pm
Poneke
I wish they did – I’d be very wealthy.
Will
go to http://www.macros.org/petrol.php and you can see how margins have shrunk severely. They are still well outside their comfort zone and have a way to go.
AS for hedging, well they are so large why bother? They have a natural hedge in volume and diversity.
The profits are all upstream meaning exploration and production and recently refining. If there was a lot of money in selling fuel there would be a lot more petrol companies and stations. Instead they are closing sites and pulling out of markets. Gull came in wiht big hopes and haven’t opened anything in years and never even made it to Wgtn
May 22, 2008 at 9:57 pm
Insider: thanks for referencing my site
As a note, after the last increase the NZHerald said that margins were down to 22c. My graph (which is based on US prices as I can’t find Singapore pricing) showed a margin of about 14c after the last increase. So maybe take the margin on my graph & add 8c for NZ margin.
My rough estimates show that prices go up when the margin (on my graph) is less than about 15c. Decreases happen when the margin is over 22c. So adding on the 8c means that the target profit margin is about 23-30c. Current margin is about 21c, which can’t be that painful!
Macros.
May 22, 2008 at 10:34 pm
Good to meet you macros. I find your info very useful.
For a lead on Singapore prices you could try the Australian Institute of Petroleum but you’d have to do another currency conversion. Platts is best but you have to pay…
I agree totally with your analysis but I must have misread your graph – I thought it was at about 12c. Ilooked at the pretty picture and didn’t bother looking at the numbers. I’m powerpoint not excel.
May 22, 2008 at 10:58 pm
I was hoping for a 60 cent petrol tax drop in the budget to take back to $1.20, but it didn’t happen. Spare a though for the UK – now about $2.85 there with their crazy taxes.
With tax making up nearly half the cost, the price of petrol doesn’t bother me too much. I think just think of all those lovely schools and hospitals I’m paying for…
May 22, 2008 at 11:41 pm
Insider: yeah, AIP is good, except it’s delayed a day.
Donations accepted for a Platts feed
8 or 10 cents, close enough really. If the current margins are tight, then almost doubling them must be nice for the fuel companies. It’s almost pure cream!
I’d be interested in knowing the total petrol consumption in NZ. I imagine even if the profit is only 10c/L that they’d be making a decent amount of money!
May 23, 2008 at 10:10 am
Thanks for the replies, guys.
May 23, 2008 at 3:34 pm
Macros, MED publish that on a quarterly basis
oil tables from MED
from some back of the envelope calculations, is it about 2.7billion litres of Diesel and 3.1b litres of Petrol, so @10c/l it is in the realm of 5-600 million dollars.
May 23, 2008 at 4:50 pm
You have to remember that the margin is a gross one. All the costs form the time it leaves the refinery have to be added on.
Most of hte diesel is sold commercially so you can instantly take at least 5cpl off the price – that’s the most basic offer to most fuel card holders from Chamber of Commerce and caravan club members up. the big guys get much larger discounts.
So i think you can “discount” your margins
May 23, 2008 at 5:47 pm
So, just petrol, based on their “normal” margins of 30c/L or so… that’s a nice NZ$300 million, give or take a few mil.
May 23, 2008 at 9:34 pm
But that is not their normal margin. MED puts it at around 18-20 and that is an income margin rather than profit.
May 29, 2008 at 1:35 pm
We’ve had $2+ petrol prices on Waiheke Island for a long time. Welcome to the real world (where it’s often already $3 a litre).