Petrol companies cut margins after minister's letter, but not all the way

Wednesday, 27 July 2022

Director of fuel price tracking app Gaspy, Mike Newton, says the average price for 91 is currently sitting at $2.70.

Petrol companies cut their margins on fuel after being asked to do so by Energy Minister Megan Woods, new figures released by the Ministry of Business, Innovation and Employment show.

However, the margins remained at a historically high level.

The so-called “importer margin” on 91-octane petrol spiked dramatically to 63 cents a litre in the week ending July 15, but dropped back last week to 43.5c.

The margin on diesel fell from 71c to 57c and on 95-octane fuel from 75c to 55c.

The margin represents the difference between the price at which petrol companies import fuel, and the price they sell it at, and needs to cover their local transport and distribution costs and the costs of running their service stations as well as their profit margins.

MBIE data shows importer margins on petrol have fallen after a dramatic spike, but remain above trend.

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The drop in margins came after Woods wrote to petrol companies, voicing her concern over the earlier spike and telling them she expected to see margins come down.

But even after last week’s drop, the importer margin was still above its normal level, which in the case of ‘91’ has usually sat in a band between 25c and 30c over the past 5 years.

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There are some signs that when it comes to fuel prices, the worst could be over for motorists.

Prices for most commodities, including oil, have been on the retreat since May as fears of recessions have risen, though natural gas and coal remain important exceptions.

Many analysts expect the price of oil to continue to edge down, both because of recession fears and more oil production coming on tap, including from United States shale oil producers.

The International Energy Agency forecasts global production will rise by 1.8 million barrels per day (mb/d) by the end of the year to reach 101.3mb/d.

But it cautioned that the outlook for oil markets had rarely been more uncertain.

Global refining margins, which have been the key factor driving prices higher in New Zealand, are also now in retreat.

The average price for 91 octane petrol has dropped between 30 and 41 cents in 20 days, to an average of $2.70 a litre, according to Gaspy.

Director of fuel price tracking app Gaspy Mike Newton said the price has dropped 18.5c in the past week and 40.7c since they began to fall on July 7.

The price of diesel had dropped 17c in the past week and 36c since July 7 to an average of $2.79 a litre.

Petrol prices lowered from over $3 to 2.76 in some petrol stations in the Wellington region.

The price of petrol in Havelock North was $2.61 on Tuesday morning, then fell to $2.51 in the afternoon, and by another 4c between 4pm and 8pm.

The price of 91 has dropped from more than $3 a litre to $2.76 at some petrol stations in the Wellington region over the past two weeks.

AA principal policy adviser Terry Collins said there had been about a 30c price reduction in the past two weeks.

The biggest drop was in the week from July 15 to July 22, Collins said

“This was on the back of a 5c drop in landed price due to refining margins coming down and a big drop in the company margins,” he said.

But there was more room for petrol company margins to come down, given they were still well above the usual upper level of the range, he said.

There was still increased volatility in the market, although the price of crude oil seemed to have settled around US$105 (NZ$168) a barrel.

The Government has extended its fuel excise tax cut and road user charges cut until January.

Collins said he did not expect the tax to be reversed before then, unless something “unforeseen” happened.

Auckland-based tax consultant Terry Baucher said a suggested profit windfall tax on petrol companies could be beneficial to the Government.

The UK introduced a windfall tax, called the Energy Profits Levy, in May and added a 25% surcharge on the profits oil and gas sector companies were making, after BP and Shell reported big profits. Similar profits had been recorded in New Zealand.

Baucher said a windfall taxes here might be beneficial to the Government as the fuel companies’ profits were an under-discussed contributor to inflation, and a windfall tax would effectively remove money from the market, which would have a deflationary effect.