KEY POINTS:
During the rapid rise of oil prices in June the Commerce Minister, Lianne Dalziel, did what ministers always do about events beyond their control: she called for a report. A few days ago she got it. Consultants Hale and Twomey seem to have answered most of her concerns, particularly the perception that petrol retailers are quick to raise prices when market conditions point that way, slower to lower them when conditions relent.
Happily, their report arrives as the international price has relented and New Zealand motorists have seen immediate relief at the pumps. Thus, when the consultants say they could find no pattern of domestic prices resisting international falls, the finding has not been greeted by the usual scorn.
The report says the petrol retail sector in this country is "fundamentally competitive". Many consumers struggle to believe that, probably because petrol prices seldom vary much between the four dominant suppliers. There is a misconception that matched prices mean fixed prices. It is not necessarily so.
Price conformity is to be expected from competition as well as from cartel arrangements. All suppliers in a properly competitive market face similar costs and will need to make similar margins. If their prime product is as identical as petrol they will compete for market share with peripheral services and special offerings.
That is exactly the behaviour we see from petrol brands, along with signs of competition in prices, too. These signs have been evident frequently since price deregulation. Sometimes one company will lift or drop its price for a day or two, hoping its rivals will follow suit. Sometimes they do, sometimes not. If they do not, the price mover normally comes back into line quickly so as not to lose profitability or market share.
The report finds retail margins lower now than they were before deregulation in 1988. And prices here are more stable than our nearest comparable market. Ms Dalziel had asked Hale and Twomey to examine the findings of an inquiry by the Australian Competition and Consumer Commission last year to see whether they applied to the New Zealand market.
Australian suppliers are also refiners and exchange product in a way which creates a "floor" price above the import price. Here, all suppliers import independently though they use a single refinery. This makes our pricing more "transparent", and the consultants see no need to adopt a scheme on trial in Australia which would require suppliers to give a day's notice of price changes.
They recommend, however, closer monitoring of wholesale and retail margins by the Ministry of Economic Development, and the minister says it will happen. They also suggest closer monitoring of port terminals to ensure independents such as Gull can import refined product readily.
Prices at the pumps in this country are lagging international reductions by a week at present. The effect is to shield consumers from sharp fluctuations, as retail sectors in other markets do. The smoothing of prices means motorists do not need to monitor daily changes and can fill up at their convenience in reasonable confidence they are getting a competitive rate.
Crude oil prices have risen five-fold in the past four years and, though they have fallen in recent weeks and are projected to fall further, they are unlikely to return to the rates we enjoyed for the 20 years to 2004. The fall is largely a consequence of slowing economies in the United States, Europe and China. When they pick up, so might the price. The best any country can do is ensure competition keeps its fuel costs in check as we are assured, yet again, it does here.
