What makes up the price of fuel at the pump?
The difference between crude oil and refined oil products
Crude oil and refined oil products are traded on international markets in US dollars. These markets are influenced by a number of factors including global supply and demand and manufacturing capability. Refineries purchase crude oil on the international market to make it into refined oil products such as petrol and diesel. Refined oil products are also traded on the international market and have their own pricing. The international refined price for petrol and diesel is typically higher than crude oil, which reflects the additional cost of converting the unrefined product into the refined product that you can use in your vehicle. BP prices its products based on refined product prices. Although the cost of crude oil is a factor in the cost of refined petrol or diesel, they are not intrinsically linked. The market prices of crude oil and refined product can each be influenced by different factors, therefore international refined fuel commodity prices may not move in line with crude oil.
Exchange rates and shipping
Exchange rate fluctuations are a significant factor, often overlooked, when comparing NZ pump prices with international barrel prices. Refined product prices (and crude product prices) are set in US dollars so any drop in refined petrol prices can be quickly offset by declines in the NZ dollar. The cost of shipping also has an effect on the price of fuel at the pump because BP imports a proportion of its products and also ships product around the coastline of New Zealand from Marsden Point Refinery.
Fuel Taxes and Levies
A significant component of the price you see at the pump is taxes, duties and levies. These are set by the New Zealand Government. For example: for one litre of unleaded 91 priced at 199.9 cents per litre, taxes and levies would account for roughly 91c of the pump price. Visit the Ministry of Business, Innovation and Employment website for more information on fuel taxes, including excise duty, ACC levy, GST and the differences between petrol and diesel.
BP fuel sources
A large proportion of BP’s products come from the Marsden Point Oil Refinery near Whangarei and the remaining proportion is imported from refineries all around the world.
The Emissions Trading Scheme (ETS)
A carbon component was added to the price of BP fuel to meet the industry’s requirements under the ETS in 2010. Under the law, many businesses are required to surrender emissions units (sometimes called carbon credits) to the Government to cover the CO2 equivalent emissions (often referred to as carbon emissions). The quantity is calculated using a formula set in regulations.
Why do oil companies appear to follow each other’s price increases and decreases?
BP independently sets a national price for its company-owned stores and monitors and reviews its prices every day to ensure competitiveness in the market.
Fuel can sometimes be different prices in different places
While BP independently sets a national price for company-owned stores, we can often change our prices in different locations to ensure competitiveness in the market. This may sometimes lead to price variations even within similar geographies, but this is the nature of competition. We try to be as competitive as possible where and when we can, but unfortunately we can’t always match or sustain heavy localised discounting across the entire market or across our entire portfolio of products. There are also a number of independent BP operators all around the country who set their own prices and manage their own operations.
What is the usual timing between an international price change and a price change at the pump?
BP buys products every day and places them into storage all around New Zealand. Because of this, it is very difficult to tell when that one litre of product you are putting in your vehicle was purchased. To ensure a level of consistency in how we price our products, we look at our prices every day and use the daily barrel price (refined product) and current exchange rate amongst other factors to help inform our decisions. The same process occurs when barrel prices go down. In short, we calculate how much it would cost for us to buy refined oil products today to replace what is in our tanks.
Further independent information on fuel pricing
In 2008 the Ministry of Economic Development (now Ministry of Business, Innovation and Employment) conducted a review into the factors impacting the competitiveness of the NZ petrol market. The report concluded that:
- The New Zealand petrol market is fundamentally competitive.
- Retail petrol prices are not fast to rise and slow to fall.
- Price rises during 2008 were mainly due to increases in the international crude oil price.
- A Fuelwatch scheme like Australia’s wouldn't benefit consumers, because our market works differently.
- More transparency about the makeup of importer margins and a move to report daily margin movements would be useful for consumers.
Need more information? Contact us.