Petrol plunge: should price be lower?

Fuel prices have dropped to the lowest in more than four years. Photo / Brett Phibbs

Motorists enjoying cheapest fuel in four years — but should it be lower?

Kiwis should have more disposable cash in their pockets as petrol prices fall around the country, but consumer groups say the amount we fork out at the pumps should be lower still.

The drop in fuel prices - to the lowest in more than four years - is expected to have a knock-on effect on other products as businesses spend less on transporting goods, meaning lower prices for consumers.

However, shoppers may be reluctant to flash their hard-earned cash after being burned by the global financial crisis, experts say, and may put the extra dollars into savings.

New Zealand has seen a record run of price cuts, with 16 over the past three months, as a combination of falling global crude oil prices and a strong Kiwi dollar works in motorists' favour.

An unscientific survey of 10 service stations around Auckland City yesterday found prices varied by up to 17 cents a litre. Some stations in East Tamaki were charging as little as 170.9c a litre; the last time prices were that low was in 2010.

But both Consumer NZ and the Automobile Association say petrol retailers could do better at lowering prices at the pump.

"The fuel companies can and should be cutting prices even further," AA senior policy analyst Mark Stockdale said. "If they cut margins back to the level they were a year ago, then pump prices could fall as much as 10 cents a litre. That shows how high the margins are."

The cuts could continue for some time, Mr Stockdale said, and the timing couldn't be better for Kiwi motorists. "They can afford to go on holiday and they possibly can afford to take a few extra day trips.

"Probably the main benefit actually is it simply means Kiwis have got more money in their back pocket to spend on other things instead of fuel."

Consumer NZ chief Sue Chetwin agreed. "Petrol has dropped dramatically ... so people will have more money in their pockets and they will have to do something with it."

In an extra boon to consumers, the price of many goods should follow petrol's downward trend.

However, there was anecdotal evidence that Kiwis were putting more into savings instead of splashing out on non-essential items, she said.

That was backed up by ANZ Bank chief economist Cameron Bagrie, who said Kiwis were more conservative following the global financial crash. "They get a little bit more money, discretionary cashflow, they're more inclined to put it away for a rainy day as opposed to get out there and blow the loot."

There was room for prices here to keep falling in the next few weeks, he said. "I'd expect it to keep tracking down, given the New Zealand dollar is up around US77c, and you're seeing international oil prices continue to move down."

But if prices fell as fast as they had in the last fortnight, that might be a bad thing. "If we see that pace continue, I think it would be a very disconcerting sign [for] the global economy," Mr Bagrie said. "Oil prices are moving down for a reason, and it's not what you'd call a positive one."

Ms Chetwin said consumers could be excused for thinking petrol stations were slower at responding to falling prices than they were to spikes.

"Despite everything they say, there's plenty of evidence to show when prices rise they seem to be able to go up straight away but when they drop they can't drop straight away ... there are all these excuses."

But petrol companies rejected that idea, saying motorists were benefiting from a highly competitive market.

Samantha Potts of Mobil said it was "absolutely a transparent market" and it was "up to customers to choose where to buy their fuel".

In New Zealand, Mobil assessed the wholesale price of petrol daily, taking into account factors including global prices, local market conditions, and freight costs, she said.

Jonathan Hill from Z Energy pointed to a New Zealand Institute of Economic Research report from August 2013 which said petrol prices "reflect input costs, not gouging".

The current run of price drops equated to around 40 cents a litre or about $20 of savings for a 50-litre fill, Mr Hill said, and drivers could "expect more cuts at the pump" if the downward trend continued.

One factor complicating direct connections between the prices of crude and local petrol was the "importer margin", which the Government monitors to promote price transparency.

It can vary substantially from week to week, but for the past three years, median importer margins rose from roughly 19c per litre to about 32c per litre last month, the Ministry of Business, Innovation and Employment said.

Fierce rivalry: cheap petrol

Aucklanders in search of cheap petrol could do worse than visiting East Tamaki, where rivalry between stations has forced prices down to 170.9 cents a litre.

An unscientific NZME. survey of 10 service stations around the city found prices varying by up to 17 cents a litre.

Three stations in East Tamaki were yesterday advertising 91 octane for 170.9 cents a litre; in downtown Auckland it was 187.9 cents.

Gull's East Tamaki Rd manager, Kultej Singh, said sites there had always offered the cheapest prices in Auckland, and those in the know visited from as far away as the North Shore and Bombay to take advantage of that.

"Lots of people come, especially [when] we've got 10 cents off [which happens] every month. At that time lots of people come from North Shore, Bombay, Pukekohe and fill up big containers."

- additional reporting: Patrice Dougan