• If applicable
Posted Monday, February 8th, 2021

At least once a week, well, maybe more, most of us visit a service station to feed our vehicle. It’s a regular expense and that’s why we like to keep an eye on it, discuss it, and every once in a while, rant about the government and the corporations because of the rising fuel prices.

But what exactly are you paying for and what factors decide the price of fuel? Let’s find out.

Handle fuel nozzle to refuel. Vehicle fueling facility.

PETROL PRICES

In New Zealand, fuel prices depend on various global factors like supply and demand, political climate, seasonal demands and exchange rates.

The amount you spend on a litre of petrol consists of the following:

  • Imported cost of the petrol
  • Fuel excise
  • ETS
  • GST
  • Shipping costs
  • Importer margin
Pump nozzles in gas station

DIESEL PRICES

Diesel prices differ from petrol prices for a few reasons. First of all, instead of paying excise tax (one of the taxes you have to pay for petrol), you pay Road User Charges.

The current cost of diesel consists of the following:

  • Imported cost of diesel (this amounts to almost 50% of the total cost)
  • Freight
  • GST
  • ETS (which is approximately 8 cents/litre)
  • Importer margin
  • Road user charges

Some other factors that can affect the prices of diesel, but not petrol, are global demand for heating oil or demand for heavy transport fuel.

On another note, the prices of refined petrol and diesel can be influenced by various factors that have nothing to do with the price of crude oil. Even though it’s one of the decisive factors that determine the cost of imported petrol or diesel, they aren’t really related to each other.

Pump nozzles in gas station
Rising Fuel Prices Ahead Image

WHY ARE FUEL PRICES RISING?

The reason behind rising fuel prices is simple – demand exceeding supply. Refineries are trying to keep up with the demand. In times like these, when the supply is limited, any political or natural disturbance or even the possibility of such disasters, can increase fuel prices. If you watch the news, you’ll find that the countries that have oil refineries are always involved in some sort of political conflict. This may cause the prices to fluctuate from time to time.

The other reason behind rising prices is investment speculation. Due to a weaker global economic climate and a weak US dollar, money from investment funds is being directed towards food and oil. Hence, the prices are rising.

Another factor to consider here is the exchange rate. New Zealand purchases fuel in U.S. dollars. When it comes to fuel prices, we can expect some sort of cushion when the New Zealand dollar is stronger compared to the U.S. dollar. However, if the the New Zealand dollar falls, the fuel prices increase.

Usually, any such fluctuations in fuel prices affects the consumer immediately – which is good for your pocket when the prices fall, but not so good when they rise.

(Sources: Stuff.co.nz, Reserve Bank of NZ Bulletin Vol 68, No.4, aa.co.nz)

 

Blog article by Praneel Lal

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