Fuel Pricing

You've told us you'd like to know more about what really goes on with the price of petrol and diesel, so here’s the deal, in plain English.

Petrol and diesel prices are driven by three things:

  • Government taxes and levies
  • the cost of oil and refined product (petrol and diesel)
  • the exchange rate (what the New Zealand dollar is worth compared to other currencies)

But what does that actually mean?

1. Government taxes and levies

A significant portion of the price of every tank of fuel is made up of Government taxes and levies. At the moment, 66.14 cents per litre is collected by the government as fuel excise (excluding GST). In addition, a GST of 15% is collected on the overall price of fuel including excise.

There are no taxes on diesel other than GST and a small land authority petroleum tax and monitoring levy. Instead, diesel vehicles pay Road User Charges. All fuels also pay an Emissions Trading Scheme levy.

2. The exchange rate

Like the rest of the world, we buy oil and fuel products (ie petrol, diesel) in United States dollars. When the New Zealand dollar is strong against the United States dollar we can buy more oil and fuel for every dollar and the ‘price at the pump’ is lower. When our dollar is weaker, we can't buy as much oil and fuel for every dollar so the petrol prices at the pump rise.

3. The cost of oil and finished petrol and diesel on the international market

New Zealand imports nearly all its fuel. About 70 per cent arrives as crude oil and gets processed at the Marsden Point refinery. The rest arrives ‘ready to use’.

As we only sell “refined product” (for example petrol and diesel), not crude oil, our price at the pump is based on the price of refined petrol and diesel on the Singapore market.

So why do prices move up and down so often? Crude oil, petrol and diesel are all independently and internationally traded commodity products. Any shocks, either increased demand, or supply interruptions or even the threat of supply interruptions, can have a significant impact on the price we pay when we buy shipments of crude oil and products.

The price of crude oil and refined products often rise and fall at roughly the same rate but not always, as each product has slightly different supply and demand drivers. This is why if the price of crude oil drops, it doesn’t necessarily mean the price you see at the pump will also drop.

For example, the US summer driving season tends to push up demand for petrol, and obviously the more something is in demand, the higher the price. But this won’t necessarily affect the price of other fuels you get from crude, so the price of refined petrol could go up markedly while the price of crude oil or refined diesel remains unchanged or only increases slightly.

Importer margins

The other big question many people have is, “How much money do oil companies make?” Unlike our major competitors Z does not drill for or produce any oil, so we don’t benefit from an increase in the price of oil products. We make a margin on the difference between the cost of the product we purchase (i.e. petrol and diesel) and what we sell it for - this is called the “importer margin”.

Out of the importer margin all operating costs associated with running the business are removed, such as wages, office costs, transport, electricity, income tax and so on are taken out. Whatever is left after these costs is the company’s net profit margin. Last year this was about 4c net profit per litre of fuel that we sold across out network.

If you have any questions about fuel pricing that we haven’t answered here, drop us a line and we’ll do our best to answer them.