91 and 95 petrol prices exceed $3 per litre, more price hikes expected

The cost of a litre of 91 and 95 octane petrol has surpassed the $3 mark in parts of New Zealand.

According to fuel price comparison site Gaspy, the price of 91 is $3.09 at BP New Lynn in Auckland. The same petrol station is selling 95 for $3.27, 98 for $3.39, and diesel for $2.57 per litre.

Despite New Zealand having at least 26 days of fuel in reserve – and a further month’s supply already in sovereign waters – motorists are now paying prices based on petrol that has yet to arrive.

Minister of Finance and Economic Growth Nicola Willis told media on Monday that, in addition to up to 28 days of petrol, diesel, and jet fuel already in the country, a further 29 days of fuel is currently en route to New Zealand.

Chief executive of fuel retailer Waitomo, Simon Parham, told Stuff the prices Kiwis pay are based on the “replacement cost” of fuel. That means motorists are effectively paying for today’s higher international oil prices, rather than the cost of fuel when it arrives in New Zealand.

Regardless of these reserves, Mr Parham said new fuel supply washes through Waitomo’s system every three to four days.

“At some time you have to pay the piper, right? You do actually have to pay for it, whether it’s now on a replacement basis, or whether it’s in two months when the product arrives,” said Mr Parham.

“That means there’s not much of a lag or a lead on higher prices. So the prices do flow into the market reasonably quickly.”

An unnamed industry source who works for a petrol company explained the replacement price model in more detail.

“That means our price reflects what it costs us to buy our next shipment of refined fuel from overseas, not the fuel that’s in the tanks today.

“For every litre of fuel that goes out, we buy a new litre to replace that fuel, and that’s the price we charge for it.

“Because that replacement cost has jumped 80 per cent in eight days,” they said, the increase then flows through to consumers given the typical three-cent-per-litre retail margin.

“We make, on average, three cents per litre on every litre of fuel we sell. There’s really limited ability to absorb any cost increases, so that’s what we’re seeing now.”

Gareth Kiernan, chief forecaster at Infometrics, told Stuff New Zealand likely hasn’t yet seen the full effect of rising international oil prices and expects prices to rise further at the pumps.

“Oil prices are quite volatile from day to day, but we would estimate if the price holds at about US$100 a barrel, you’re likely to be looking at petrol prices for 91 sitting at around $3.25 a litre on average," said Kiernan.

“We’re probably most worried about the effects higher fuel costs have on the transport sector, and how that potentially flows through into higher prices for all other goods and services that need to be transported around.

“It’s not great news for the cost of living, whichever way you look at it.”