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How are petrol prices calculated?

While petrol and diesel are both produced from crude oil, the price per barrel of oil doesn’t influence the price you pay at the pump by much. In fact, over the long term, every US$1 increase in the price of a barrel of crude oil adds approximately 1c per litre to the cost of fuel at the pump. The pump price is more influenced by how much it costs to buy refined fuels (this includes the cost of converting oil into petrol or diesel) and the amount of tax the government charges.

The price of crude oil can spike up and down without affecting the price of refined oil too much as oil refiners purchase futures that ensure they can buy at a certain price at a specific date in the future. This allows them to plan and avoid short-term fluctuations and volatility due to geopolitical issues (something which is common given that a significant portion of the oil supply comes from countries with a reputation for political instability).

The crude oil New Zealand uses is Brent crude, which is more expensive than West Texas Intermediate (the price commonly quoted in the media, see below). There are over 150 different crude blends at different prices as you can see here.

Example futures prices from Oilprice.com

New Zealand’s fuel market is de-regulated, i.e. pricing is not directly controlled by the government and different companies are free to compete in the market. This should, theoretically, create competition that keeps prices down. The Commerce Commission works to prevent price-fixing between suppliers.

What proportion of the cost of petrol is tax?

The government applies fuel excise tax, GST, emissions trading scheme levy and a regional fuel tax (if you’re in Auckland) that makes up around 50% of the price of the fuel at the pump. The current fixed excise tax is 63.784c per litre, the regional fuel tax is 10c per litre and the ETS is around 6.2c per litre. GST is 15%, therefore is variable depending on the price.

What proportion of the cost of diesel is tax?

There’s no excise tax on diesel because diesel users pay road user charges (RUC). That leaves the emissions trading scheme levy of around 7.2c per litre and GST, which varies depending on the final price.

What proportion of the fuel cost is the profit for the importer?

The cost of the refined fuel makes up around 27% of the total price of fuel, while the importer’s margin is around 24%. The importer usually makes between 40-50c per litre for petrol and 50-55c per litre for diesel. However, the fuel stations do not see much of this and they make much of their profit from selling food, drink and other services.

What factors influence the price of fuel?

Changes in the retail price of fuel tend to lag international price changes by around a week. If the price of crude goes up or the exchange rate changes, fuel companies respond within a week. However, when the government announces a new fuel tax, this doesn’t come into effect until a specific day.

The price of fuel is affected by our exchange rate. If the New Zealand dollar weakens, fuel gets more expensive because fuel is priced in US dollars.

How can you find a better deal on fuel?

Fuel cards are a way to save money on fuel. Companies like iCompario have access to competitive deals across fuel networks.

Supermarkets give out fuel vouchers with purchases. Occasionally there are larger discounts for larger purchases.

Some fuel companies have loyalty cards either running their own deals, such as Mobil Smiles, or tied to other points systems. There is often one day a week where they offer a bigger discount.

Apps such as Gaspy use crowdsourcing to map where the cheapest fuel prices are.

If you live near the border of the Auckland regional fuel tax, you can purchase your petrol outside of the tax region.

Use a credit card to pay for your fuel (preferably one that earns some other kind of loyalty discount, such as True Rewards or Fly Buys).

Don’t drive too far out of your way just to save a couple of cents a litre as it’ll cost you more than you save.

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Darren is a member of the Institute of Advanced Motorists and the NZ Motoring Writers' Guild

Posted in Advice
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