ANALYSIS: Petrol companies’ gross margin on petrol soared above 60 cents a litre last week, provisional figures published by government officials confirmed on Tuesday.
The retail margin on diesel was even higher, topping 70 cents per litre (cpl).
The margins are unprecedented in at least the past five years, according to the data, which is collated by the Ministry of Business, Innovation and Employment (MBIE).
Motorists often accuse petrol companies of being quick to raise their prices when the price of oil increases, but slower to drop them when oil prices come down, and here it seems they have hard evidence to back up their complaint.
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Petrol companies do appear to have been caught red-handed being slow to pass on cost savings caused by a solid drop in oil prices and even stronger falls in refining margins over the past few weeks.
At least until a not-so-gentle nudge from Energy Minister Megan Woods brought prices down over the weekend, that is.
Woods wrote to the petrol majors last Friday, saying that while she understood fuel companies were not always able to immediately adjust prices to match shifts in costs, the historically high margins concerned her.
She bluntly told them she expected to see the recent decrease in importer costs passed through to consumers at the pump “in the coming weeks”.
Finance Minister Grant Robertson announces the cut to fuel excise and half-price public transport will be extended until next year.
MBIE has been separately reporting on the petrol companies’ response to the fuel tax cuts that were first implemented in March, which amount to 29cpl including gst, through a ‘traffic light’ system and red-flagged their rise in margins in the week to July 10.
Petrol margins do jump around a fair bit from week to week, but not normally to anywhere close to the extent that MBIE is now reporting.
Margins spiked to 45cpl in the early days of the Covid pandemic and have also dipped under 20cpl at other times over the past few years.
But there has been nothing like the move above 60cpl, in the past five years.
Smoothing out the peaks and troughs, there also appears to be a medium-term trend towards higher retail margins on fuel, with MBIE data plotting a trend in average margins on petrol from a historically fairly low 24cpl around the turn of 2021 to what appears a more-than-healthy margin north of 30cpl now.
The concern over high margins comes after Mobil and BP reported bumper annual profits in June.
BP New Zealand reported a $230 million after-tax profit for 2021 weeks after rival Mobil reported a $183m profit for the same year.
The price of Brent Crude has dropped by about US$7 a barrel over the past two weeks and at one point was down about US$14 last week.
Sungmi Kim/Stuff
Energy Minister Megan Woods intervention comes after the conclusion of the Commerce Commission market study which was intended to address competition issues in the retail fuel industry.
Normally a US$1 drop in the price of oil could be expected to reduce the price of petrol at the pump by about one New Zealand cent a litre.
But the bigger cost-drop has come from a steep decline in very high international refining margins which for petrol have fallen from about US$40 a barrel to about US$25 a barrel over the same period.
Combined, those changes would be expected to drop the price of petrol by about 22 cents a litre.
BP New Zealand said in a brief statement that there were “a number of factors that influence prices”.
“We continue to review BP Connect prices every day to ensure competitiveness in the market.”
But if the goal is simply to stay “competitive” in the market, that would appear to suggest it is what other companies are charging for petrol, not what petrol actually costs, that determines its pricing.
Z Energy at least provided more justifications.
Spokesperson Haley Mortimer said that “given the ongoing volatility in the global market we are waiting longer than usual for price movements up or down”.
“Z is also a business with largely fixed operating costs, meaning we are subject to the very real impacts of volume declines which we continue to experience as a result of the Orange Covid setting, alongside high input costs such as freight,” she said.
Mobil was also approached for comment.
The spike in margins has come at a tricky time for the Government, as concerns mount that it will be hard to wean motorists off its expensive fuel tax subsidies, when they are now scheduled to come to an end in January next year.
It will also likely to cement motorists’ assessment that the Commerce Commission’s $2.5m market study into the retail fuel industry was a failure.
Do consumers have a right to be aggrieved? Well, probably.
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