Business

Fuel pricing – what influences it?

31/08/2012 - Industry insights

Everyone likes it when fuel prices fall and no one likes it when they go up. 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:

  1. Government taxes and levies
  2. the cost of oil and refined product (petrol and diesel)
  3. 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, 61.129 cents per litre is collected by the government as fuel excise (excluding GST).In addition, 15% GST is collected on the overall price of fuel including excise. There are no taxes on diesel other than GST. Instead, diesel vehicles pay Road User Charges.

All fuels also pay an Emissions Trading Scheme charge (approximately 3 cents per litre).

2. 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’. Crude oil and refined products are internationally traded commodities, where demand and supply are closely matched. 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.

Also, as we only sell “refined product” e.g. petrol and diesel, not crude oil, the availability of refineries and level of stocks also cause fluctuations in prices from time to time

3. The exchange rate

Like the rest of the world, we buy oil and fuel 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 may rise.

Importer margins

The other big question many people have is, “How much money do oil companies make?” Z does not produce crude oil so we do not benefit from the increase in the price of oil. We make a margin on the difference between the cost of the product we purchase and what we sell it for, this is called the “importer margin”. Additionally we receive income from our 17% share in the refinery at Marsden Point.

The importer margin is the amount that fuel companies – like us – make before all operating costs like wages, office costs, transport, electricity, income tax and so on are paid. Whatever is left after these costs is the company’s profit margin. Last year this was 2.1 cents per litre.

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.

 


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