Oil slides, petrol only slips
The price of petrol is falling, aided and abetted by a regional price war, but has it declined far enough, given the slump in oil prices?
Benchmark West Texas Intermediate this month dropped to less than US$35 a barrel, before recovering some ground to be trading yesterday at US$37.88 - about 29 per cent below where it was a year earlier.
Oil prices are more than US$100 a barrel lower than the record high of US$145 a barrel recorded in 2008.
AA PetrolWatch this month estimated the national price of 91 octane petrol to be $1.85 a litre, which is about 4.6 per cent lower than a year earlier, although certain service stations have run temporary discounts at lower prices.
Tempting though it might be to blame profiteering oil companies for the apparent discrepancy, the answer is more complicated than that.
The first piece of the puzzle is the exchange rate. Not so long ago - July 2014 - the exchange rate was over US88c - affording the country something of a buffer for high oil prices at the time of about US$110 a barrel.
Now the exchange rate has come down, and so have oil prices.
If the exchange rate was the same as it was then, petrol prices would be 50c a litre less than where they were a year ago, AA PetrolWatch spokesman Mark Stockdale estimated.
"So the exchange rate is having a huge impact on an apples with apples comparison," he said.
This year the exchange rate is down about US10c in the past 12 months. In January this year petrol fell to $1.73/litre. About 10c of that is due to the fall in the exchange rate, Stockdale said.
He said motorists tended to look just at the oil price, without taking into account that petrol is a commodity in its own right, and one that is susceptible to different influences.
"The price of oil has no relevance to the price that motorists pay, so the AA does not really monitor that," Stockdale said.
"We don't monitor the oil price because it is not what the companies are paying.
"They are buying refined fuel which has its own commodity price."
Petrol trades at about US$60 a barrel and moves up and down separately from the price of oil.
Refined fuel prices can be influenced by a range of factors such as refinery maintenance shutdowns, unplanned outages, and fires.
In the aftermath of Hurricane Katrina in 2005, petrol spiked higher because major refineries in the Gulf of Mexico were out of action as a result of the disaster.
"It moves independently of oil prices but oil prices do influence the commodity price because if the oil price is falling, then logically it should influence the refined price," Stockdale said.
The price of fuel can be broadly described as comprising four pieces of pie of broadly equal size, with the refined price of fuel representing just a quarter of the total cost. About half the pie is tax - made up of excise tax, and goods and services tax. The remaining quarter is fuel company overheads and each fuel company's profit margin.
"Three quarters of the pie does not reduce just because of changes in the refined cost of that product," Stockdale said. "So when people expect retail prices to fall more in proportion to the commodity price, they need to consider that the only proportion that moves is that one quarter, and then they need to factor in the influence the exchange rate might have on that one quarter.
"The AA is not letting the fuel companies off the hook - they are responsible for that one quarter of the cost - and we are concerned that that quarter has been increasing in size.
"However, we are not letting the Government off the hook either, and the Government is responsible for half the cost. The reality is that the Government is responsible or half the price of fuel in the form of tax."
But Stockdale said consumers can take some comfort from the fact that most of the tax coming from fuel is "hypothecated" - meaning it is dedicated to funding and improving the New Zealand transport system.