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New Zealand Classic Car - - PRICE ON -

t’s been awhile since I’ve writ­ten about petrol. How­ever, with my predilec­tion for sav­ing old news­pa­per cut­tings of rel­e­vance, I couldn’t help but no­tice in re­cent times that, while the price of a bar­rel of oil has plum­meted, pump prices do not seem to have fol­lowed suit to the same ex­tent. In the past, we have been told by var­i­ous oil-in­dus­try rep­re­sen­ta­tives that when the price of a bar­rel of oil in­creases, so does the pump price. In fact, we have been led to be­lieve more than once that a $0.01-per-bar­rel in­crease in crude oil equated to a $0.01 in­crease in the pump price of a litre of stan­dard. Al­though I was nowhere near the sea, I started to smell some­thing fishy, when, in early 2015, var­i­ous peo­ple started to ask why the pump price was not drop­ping and why taxi fares and freight charges were also not fall­ing, de­spite ob­vi­ous lower fuel costs.

Fluc­tu­a­tion

Over the Christ­mas break, I be­gan gath­er­ing up in­for­ma­tion from the sup­posed ex­perts, who seem to be go­ing to great lengths to jus­tify why petrol prices still seem to be stay­ing higher than the av­er­age mo­torist would ex­pect. For in­stance, in Fe­bru­ary 2015, oil was quoted as be­ing US$54.98 a bar­rel, and the New Zealand dol­lar was buy­ing $0.72. The pump price at that time was $1.79 for a litre of 91 oc­tane, hav­ing just gone up some $0.04 be­cause of ‘a de­pre­ci­at­ing New Zealand dol­lar’ and ‘in­creased com­mod­ity prices’. In Fe­bru­ary 2016, the New Zealand dol­lar was buy­ing only $0.66, and the pump price was $1.85 for a litre of 91 oc­tane. How­ever, the price of a bar­rel of oil was just un­der US$28, hav­ing fallen about 20 per cent this year, ac­cord­ing to a BP spokesper­son. There is spec­u­la­tion that the price of a bar­rel of oil may go as low as US$10! But, be­fore you get too ex­cited, let me pour some cold wa­ter on the is­sue.

A BP spokesper­son main­tained that the price of petrol will not fall below NZ$1.30 per litre and ex­plained that govern­ment taxes make up ap­prox­i­mately 50 per cent of the price of a litre of 91-oc­tane petrol. The spokesper­son claimed that just over a quar­ter of the pump price is the ac­tual cost of the re­fined petrol and 50 per cent is tax. Re­mem­ber that we pay GST on the to­tal cost of a litre of fuel, so we are in ef­fect pay­ing tax on the tax!

What I found in­ter­est­ing is that the var­i­ous spokes­peo­ple are now talk­ing about ‘re­fined prod­uct’ as op­posed to the crude price. So, (ap­par­ently), we need to be mon­i­tor­ing the costs of a re­fined bar­rel of oil as op­posed to crude! Well, I’m glad that’s been pointed out to me! I could never un­der­stand how, in the past, if there was an overnight rise in the price of crude oil, pump prices went up the next day. Clearly, the oil was overnight couri­ered to New Zealand re­finer­ies, pro­cessed into re­fined petrol that same day, and dis­trib­uted to petrol sta­tions be­fore the close of play! When you think about it, there were many of us who just did not ac­cept that fuel prices could be af­fected so quickly.

Me­dia re­ports

The me­dia could help us out here by re­port­ing the daily price of a bar­rel of re­fined prod­uct, which would al­low us to more closely mon­i­tor the price at the pumps, but it would seem that most petrol sto­ries are pro­vided to me­dia by the oil in­dus­try any­way, and, as we no longer have ‘in­ves­tiga­tive’ re­porters, such me­dia re­leases are sim­ply printed word for word as re­ceived. One of the re­cent oil-in­dus­try com­ments that should have been in­ves­ti­gated fur­ther was: “We don’t re­ally know why peo­ple get ex­cited about oil prices. For the av­er­age mo­torist, oil prices are not a big deal!” With all due re­spect, they damn well are, es­pe­cially when, for so many years, we were be­ing told that a $0.01 per bar­rel of crude in­crease equated to a $0.01 in­crease at the pump! And now that a bar­rel of crude is around US$28, and not­with­stand­ing the govern­ment’s tax take, the price at the pumps should be much cheaper than it cur­rently is. Smoke and mir­rors?

Over­pro­duc­tion

An­other ap­par­ent con­tribut­ing fac­tor to the lower cost of a bar­rel of crude is over­pro­duc­tion. I have pre­vi­ously said that ac­cu­sa­tions of over­pro­duc­tion are di­rected mainly at the US, which has man­aged to be­come self-suf­fi­cient (thanks mainly to the frack­ing ex­trac­tion process), which means that it no longer de­pends on Middle East­ern coun­tries to pro­vide crude oil. Frack­ing is not a cheap method of ex­trac­tion, so I guess that the plan is to keep pro­duc­tion up out­side the US to make frack­ing ex­trac­tion un­eco­nomic, thus caus­ing Amer­ica to once again source its oil from abroad. The prob­lem with the low crude price for oil-pro­duc­ing coun­tries is that many of them de­pend on the in­come, and, if the crude oil price is only one-sixth of the nor­mal price, there is a cor­re­spond­ing loss of some fivesixths of their pre­vi­ous in­come.

Mar­gins

Some time ago, there was a bit of de­bate over petrol price mar­gins. For a long time, we heard that most petrol sta­tions op­er­ate on min­i­mal mar­gins of profit. In re­cent times, how­ever, there is much ev­i­dence that mar­gins are much greater than ad­mit­ted by the in­dus­try. For ex­am­ple, how come many petrol sta­tions are able to of­fer an $0.08 dis­count on a litre of petrol to any cus­tomer with a dis­count card, and, if you haven’t got one, they let you use theirs? This hap­pened to me the other day! Also, some su­per­mar­ket chains of­fer up to $0.20 per litre dis­count pro­vided you spend over a cer­tain amount on gro­ceries. Where does that come from?

I’m al­ways sus­pi­cious about any ar­ti­cle con­cern­ing the price of petrol when pre­vi­ously trot­ted-out ar­gu­ments (such as the price of crude oil rel­a­tive to pump price) are be­ing changed when they don’t suit any more. This is what is hap­pen­ing now. Ap­par­ently, the price of crude is no longer in­dica­tive of the pump price (es­pe­cially, it would seem, while the price per bar­rel con­tin­ues to plum­met down­wards), and we are be­ing asked to look at the cost of re­fined prod­uct — as it bet­ter suits a de­fence against prof­i­teer­ing! As at Fe­bru­ary 2016, the price of re­fined prod­uct is ap­par­ently just un­der US$55 per bar­rel.

Cheaper cruis­ing

Some­where in all my pa­per­work (which was packed in car­tons af­ter the quakes), I have much more data on this, and, hope­fully, I will be able to find some his­tor­i­cal re­fined-prod­uct prices to com­pare. At the end of the day, we are pretty much de­pen­dent on petrol and will fill up re­gard­less of the cost — and the oil in­dus­try knows this. I guess the only re­ally good news is that those clas­sic car en­thu­si­asts with gas guz­zlers that man­age only two or three kilo­me­tres per litre will be en­joy­ing be­ing able to cruise that lit­tle bit fur­ther on their $100 tank­ful. When we had our 1959 Cadil­lac Fleet­wood and petrol was only $1.07 per litre, a Sun­day cruise used to cost us about $120 in petrol. When petrol was over $2 per litre, the cost of such a cruise dou­bled!

In the mean­time, it looks as if I will have to keep a sharp eye on the price at the pumps once again to make sure we are not be­ing ripped off. Watch this space!

Drive safe and make the most of the cheaper petrol while we have it.

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