KEY POINTS:
Motorists should steel themselves to fork out over 2 dollars a litre for petrol very soon, latest figures from the oil industry indicate.
The sheer speed of the rise in the New Zealand dollar price of oil has meant oil company profit margins have been squeezed to historically low levels in recent weeks, meaning the petrol price is set to rise to $2 a litre once profit margins are restored, even if the oil price does not rise any further.
Ministry of Economic Development figures on oil costs, tax costs and oil company distribution, refining and profit margins show that oil company margins have averaged around 30 cents a litre for the last year, but that this margin has dropped to 22 cents in the last two weeks.
This suggests that oil companies have been reluctant to pass directly on to consumers the 38 per cent increase in the New Zealand dollar cost of oil seen in the two months as both the crude oil price in US dollar terms has surged and the New Zealand dollar has fallen, compounding the damage in New Zealand dollar terms.
The New Zealand dollar cost of crude oil per litre has jumped from 72 cents on February 29 to 99 cents a litre on May 16. The portion attributed to tax has been steady at around 71 cents a litre as most of the tax costs are per litre costs, rather than per dollar spent.
These MED figures were current as at May 16 when the total cost was $1.93 a litre of regular and did not take into account the move to $1.97 cents a litre for regular on Tuesday.
Assuming the oil companies increase their margin back to the average, that would add a further 8 cents a litre to the cost of petrol. Previous sharp drops in oil profit margins took around 3 to 4 weeks to rebound to average levels.
Assuming the 5 cent a litre increase in the last two days was purely margin related, then the remaining 3 cents will follow through in the coming weeks to take the total price over $2 a litre for regular.
- INTEREST.CO.NZ
