Fuel tax cut won't be rescinded early despite sharp drop in oil prices

Wednesday, 16 March 2022

Energy Minister Megan Woods says she has been in touch with fuel companies to ensure that the 25c reduction in fuel excise duty is passed onto consumers.

The price of oil tumbled further overnight on Tuesday and is now only a few dollars higher than it was when Russia invaded Ukraine on February 24.

But declining prices won’t prompt the Government to reverse its steep cut to fuel taxes ahead of schedule, a spokeswoman for Energy Minister Megan Woods said.

West Texas Intermediate (WTI) crude for April delivery was trading at US$95.67 (NZ$141.31) a barrel on Wednesday morning, versus $92.10 the day prior to the invasion, after falling about 8 per cent overnight.

Brent Crude for May delivery was trading at US$98.99 barrel, which was also less than $5 higher than its pre-invasion price.

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Refining NZ receives its last shipment of crude oil at its soon-to-be-closed refinery at Marsden Point.

A barrel of oil produces about 159 litres of petrol, which is why it is a good rule of thumb that a US$1 rise in the price of a barrel will increase petrol prices by about one New Zealand cent a litre.

The price of Brent crude spiked above US$139 a barrel early last week.

Oil prices were still sitting at about US$110 a barrel at the beginning of this week, when the Government decided to respond to rising fuel prices by temporarily reducing the fuel tax levy by 29 cents a litre, including gst.

A spokeswoman for Woods said the reduction in fuel tax would not be reversed ahead of schedule before June if oil prices stayed where they were, or even if they fell further.

The commitment was made for three months, she said.

Oil futures prices suggest fuel prices should ease later this year, and next year.

WTI for delivery in December was trading at about US$83 a barrel, and at about US$76 a barrel for delivery in December 2023.

Z Energy said in a statement that it might not always reduce petrol prices by the amount implied by a drop in the price of crude, in part because it may have been absorbing previous price increases in its margins.

There were also other factors that affected pump prices, such as shipping costs, the price of carbon credits and local competitive pressures, it said.

Z said it expected the price of refined fuels would remain “volatile” as a result of the war on Ukraine.

It had been providing data on its retail margins to the Ministry of Business, Innovation and Employment, it said.

“We have seen significant increases in shipping costs as the market reacts to sanctions and restrictions on Russian ships,” spokeswoman Haley Mortimer said.

“As an example, for the week beginning February 28, we have seen freight increase by about 22 per cent.”