As international crude oil prices drop faster than pump prices, an unprecedented 60c in every litre of petrol or diesel is going to the fuel retailers – sparking pleas to limit 'super-profits' by passing on the savings to struggling consumers
Comment: Even after the Government’s 25c a litre fuel excise cut, petrol prices are up 36 percent year on year. The price of diesel is having an even bigger impact on the cost of living ... extraordinarily, that has doubled in the past 12 months. It is diesel that fuels New Zealand’s tractors; that powers the trucks that get our produce to market; that keeps the freight trains running.
Fuel was one of the biggest contributors to the big rise in consumer price index inflation published by Statistics NZ this morning – the petrol price rise was the biggest since 1985.
That’s why the Government has announced it will extend its reductions to fuel excise duty, road user charges and half-price public transport by more than five months, through to the end of January next year.
“We know that inflation is rising across the world, and cost of living pressures are making it tough for New Zealand right now,” Grant Robertson said. “High fuel prices, particularly driven by the impact of the Russian invasion of Ukraine, are a global problem affecting households and businesses in New Zealand.”
And that’s true – but that’s only part of the story.
Every week, there are two organisations that monitor fuel prices: the Ministry of Business and Innovation, and consultants Hale & Twomey. Both reported that in the week to July 8, the fuel companies’ margins went through the roof.
“Our expectations are that we would start to see in the next few days some of those decreased prices of crude flowing through to consumers at the pump.” – Megan Woods, Energy Minister
According to the MBIE data, petrol margins were up from 22c to 45c a litre; diesel margins were up from 30c to 64c a litre.
Hale & Twomey's latest data, supplied to the consulting firm's government and corporate customers today, shows that the margins increased even further last week – another 15c on petrol, another 5c on diesel.
That’s because the prices New Zealand importers pay for international crude oil have, in fact, been dropping – from NZ$183/barrel a month ago, to $165 this month. But according to the most recent data, importers hadn’t passed that on to motorists, farmers and truckies. Yesterday – as the Government began talking about their margins – the fuel companies finally began dropping pump prices.
This afternoon, Energy Minister Megan Woods said she had spoken to fuel company chief executives, asking them the cause of the spike.
“We know that crude prices have been falling and volumes have been falling," she said. "I want to have a conversation about what is driving it."
Asked if they had been allowed to rip off the taxpayer for two weeks, she said: “That is exactly why I wrote to them, I am not defending it.
"We were only able to get this data because the Government got ahead of it by passing the Fuel Industry Act in 2020 that called for greater transparency and reporting of things like margins, to be able to ensure that the benefits we have put in place are ending up in consumer’s pockets and not in super profits."
"The AA invites the oil companies to responder quicker to these lower landed prices and to pass on these savings to motorist who are currently hurting." – Terry Collins, AA
The Government must be starting to worry that the money it’s sacrificed from excise and road user charges isn’t doing enough to keep fuel prices and inflation down; instead a portion of it is going into the pockets of the multinational fuel companies’ distant shareholders.
BP New Zealand spokesperson Gordon Gillan said there were a number of factors influencing prices. "We continue to review BP Connect prices every day to ensure competitiveness in the market."
Hayley Mortimer, a manager at New Zealand’s Z Energy and Caltex service stations, now owned by Australian fuel giant Ampol, argued the ongoing volatility in the global market meant they were waiting longer than usual for price movements up or down. As the business had largely fixed operating costs, they were subject to the very real impacts of volume declines caused by the Covid orange setting, as well as high input costs such as freight.
“It’s important to note that just because crude drops, it may not mean that we drop pump prices by the same amount, as we may have been absorbing some of the previous increases into our margins,” said Mortimer, the company’s external communications and government relations manager.
Yesterday, Z reduced prices back below $3.00 a litre for 91 and diesel. Mortimer said it was responding to recent declines in Brent Crude prices, but surely, it must also have been responding to the added public and political scrutiny as the Government was forced to extend its excise and road user charges cuts.
That will be putting the heat on the big fuel retailers. "I think there could be more drops this week, reflecting more of the international market decrease seen last week," said Hale & Twomey director Ian Twomey.
There was room to trim back the increased petrol margins. And although diesel margins hadn't increased as much as petrol last week, they were already "very high historically".
Twomey said: "More room to move there, too, if companies are really intent on passing through the declines in international markets."
The money cut from government revenues is the money that pays for safe roads and new roads; in order for the government to keep its promises to maintain the National Land Transport Fund, that money now has to be scrounged from other budgets.
“They can say it’s coming from the small business clients or from the Covid Relief Fund,” said Terry Collins, an AA principal policy adviser. “But ultimately it’s all going to be paid back from general taxation that could have been spent on education or health or crime or some other government priority.
"The AA has noted that over the past few weeks there has been a big drop in the landed cost of petrol and diesel and this has not been reflected at the pump.
"Although some oil companies have reduced their prices in the past couple of days there is more that can be done. The AA invites the oil companies to responder quicker to these lower landed prices and to pass on these savings to motorists who are currently hurting."
Collins was closely watching the new figures from Hale & Twomey today, and it’s safe to assume Megan Woods was too.
Because the Government can only continue robbing the taxpayer to pay the fuel companies for so long. If these increased margins continue beyond a week or two, it will be at odds with every international commitment New Zealand has made to stop subsidising fossil fuels, and it will defy the purpose of the tax cuts.
These are cuts that, realistically, may be difficult for politicians to reinstate any time soon. Yesterday’s announcement extends them to the start of election year – and what government will want to raise fuel costs 25c a litre in election year?
