Fuel prices plummet across the country, but will they stay below $3 for long?

Tuesday, 15 March 2022

Petrol prices have dropped across the country after the Government removed 25 cents of fuel tax.

Fuel prices have dropped across the country after the Government removed 25 cents in petrol tax overnight.

But economists warn the price could rise again despite the cut, as oil prices remained volatile while the Ukraine and Russia conflict continued.

In Auckland, the price of 91 petrol sat between $2.75 and $3 a litre at various petrol stations, an average drop of 23 cents, a Gaspy spokesperson said.

The Government slashed fuel excise duties by 25c a litre, and road user charges by the equivalent amount at midnight after prices topped more than $3 last week. Including GST, that should have reduced prices by just under 29c.

**READ MORE:

Prime Minister Jacinda Ardern says the Cabinet will be reducing the fuel excise duty and road user charges by 25 cents a litre, as well as halving the price of public transport for three months. Video from March 23.

* What is driving the price of petrol and where will it end?

* Sharemarket responds to move to lower fuel costs

* A jump at the pump: Government has little control as petrol tops $3 a litre

At Gull New Plymouth, 91 dropped by 29 cents from $2.93 on Sunday to $2.64 on Tuesday, while the average Taranaki price drop was 21 cents.

The fuel tax decrease is estimated to cost $350 million.

Wellington had the biggest average price drop of 24.9 cents down from $3.10 on Monday lunchtime to $2.85 on Tuesday, Gaspy data showed.

NZIER principal economist Christina Leung says petrol prices go back above $3 again.

Southland and Otago had the smallest reduction in price at only 14 cents and 13 cents respectively, but that was because a lot of stations there had not been increasing prices as much over the last week as the busier centres, such as Auckland, the Gaspy spokesman said.

The fuel tax decrease is estimated to cost $350 million, and the Government said it would put money into the transport fund to ensure transport projects could still go ahead.

Prime Minister Jacinda Ardern addressed the issue as a global energy crisis.

'We are in a wicked, perfect storm, and it is a storm that is impacting people's lives,' she said.

Principal economist at the New Zealand Institute of Economic Research Christina Leung said what happened with fuel prices from here would depend on global fuel prices.

“Going forward, the direction of where petrol prices go here at the pump will largely depend on global crude oil prices, and the New Zealand dollar,” she said.

Leung said prices could “quite possibly” go back to above $3 over the coming months, even with the fuel tax cut.

“Intensifying oil supply concerns will likely push up global crude oil prices further, while a depreciation in the New Zealand dollar would make the price of imported goods, including petrol, more expensive here in NZ.”

Oil prices fell sharply overnight to below US$100 (NZ$148) per barrel, as talks between Russia and Ukraine gave hope the conflict may end, and free up global supplies.

Demand for oil is forecast to ease because China has put further lockdown measures in place to contain the spread of Omicron.

AUT economist Dr Richard Meade said high petrol prices did not necessarily mean high fuel company margins, and their margins would be volatile while oil prices were.

“This makes monitoring the impacts of the tax cuts more challenging - a price decrease now equal to the level of the tax cut, including GST savings, might easily be swallowed up in price changes over the weeks ahead, with the impacts on fuel company profitability hard to gauge,” he said.

“The current high prices are likely to be a taste of things to come even if current global drivers of surging oil prices abate.”