New Zealanders have seen fuel prices hit record highs across the country.
Stations in Auckland have advertised unleaded 91 fuel for more than $3.20 a litre, with 98 octane hitting as high as $3.50 a litre. And prices in Wellington and Christchurch soared over $3 too.
There’s no doubt international conflict has pushed up crude oil prices. But New Zealand had seen a 30 per cent rise in the last quarter of 2021, before the war started.
So what’s really behind the price rise?
Breaking down the pump price
To understand what’s behind the price rise, we need to first look at the factors determining the price of fuel. The pump price is more complex than you may think. Let’s break it down:
o Over half (52%) of the price drivers pay for petrol is made up of taxes, including the fuel excise duty, the ETS levy, and GST.
o 37% is made up of production and shipping costs to New Zealand.
o 10.6% is the wholesaler and retailer margin, which includes staff and operating costs, leases, distribution, and other costs. On top of this, wholesalers and retailers need to make a profit if they want to make their businesses viable.
Let’s explore these in more detail.
The role of Government taxes and levies
Over half of the cost of each litre of fuel drivers pay is made up of taxes and levies.
For petrol, this includes GST, excise tax, ACC and the Emissions Trading Scheme levy.
For diesel, it includes the Local Authorities Fuel Tax, the Emissions Trading Scheme levy, and GST. Rather than excise tax, diesel vehicles pay Road User Charges.
An additional 10 cents per litre in Auckland is collected for the Auckland Regional Fuel tax.
On top of everything, customers pay 15% GST.
It is government policy for all petrol tax to be directed into the road and transport system.
That’s why it was big news when the government announced in March it was cutting the excise tax on petrol, and reducing road user charges for diesel vehicle users by 25 cents.
It was estimated the reductions will cut the cost of filling up a 40 litre tank of petrol by more than NZ$11, and more than NZ$17 for a 60 litre tank.
The role of the global market
New Zealand imports much of its fuel as refined petrol and diesel or crude oil, which means local prices are subject to fluctuations in the global market.
Fuel prices here can go up and down due to:
o changes in international benchmark prices.
o the value of the NZ dollar relative to the US dollar – all countries pay for fuel in United States dollars.
o levels of competition in different areas.
For example, crude oil prices increased around 25% between December and January as global demand outpaced supply. This was reflected in the pump price in New Zealand.
Even though Russia is the second-largest exporter of crude oil in the world, Prime Minister Jacinda Ardern said New Zealand’s imports of Russian oil historically had been limited to “about 20 per cent”. Instead, the country tends to import from the Middle East and Asia.
During the war, the exports have dwindled, which means there’s more demand for fuel from other regions, and global oil prices go up.
As Deputy Prime Minister Grant Robertson said in March, “The longer the conflict goes on in Ukraine, the biggest impact economically for New Zealand will be around the cost of fuel.”
Unsurprisingly Covid-19 has an impact too. Countries around the world are now reopening after years of restrictions, which means they need more fuel. Again, more demand impacts global oil prices.
Sometimes fuel retailers can absorb costs, but these are too high and if they are going to cover their operating costs and make any profit, they need to increase the pump price.
Pump prices in New Zealand depend on a huge range of factors, particularly because fuel comes from overseas. And as long as the international conflict continues, drivers in New Zealand can expect fuel prices to keep climbing.
Despite all of this, the fuel cards offered by CardLink can continue to provide discounts at the pump, streamline business financial requirements, and ensure your business has visibility across all of your fleet behaviour.
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