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Anon

I believe diesel fuel prices are 12cents per litre overpriced.

Crude oil is now back to what it was at the end of April (US$119/$120 a barrel).

Back then (April) diesel was $1.57 now it is $1.79 (increase of 22cents).

The only thing that has changed is a drop in the USD/NZD exchange rate of 4.5c (.77 to .725) or 6%.

So add 6% to the April diesel price and by my calculations the price per litre should be around the $1.66 mark.

So if diesel should be approx $1.66 and it's currently $1.79, then aren't we being overcharged approx 12 Cents a litre?

Or am I missing something?

Dean

From the "Ask Jack" archives - 14 December 2009

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jbiddle

Your calculations are not far off, although I note the exchange rate is now nearly two cents lower than when we first received your email.

However, the key determinant is not the crude price but the refined diesel price, which has not been falling as much, thanks to stronger demand. Until last week, the refined price was higher than at the same time in early May (US$3.53/gallon on 30 July vs. $3.20/gallon on 1 May), so that accounts for why prices have been higher up until now.

That said, last week the refined diesel price fell to around $3.30/gallon, so if it is sustained (and the NZ$ doesn't drop further) then the pump price should fall as a result.

All of this aside, the main thing the AA monitors is the 'importer margin', i.e. the import (refined) price adjusted for the exchange rate, and less taxes and shipping costs. In the last few days this margin has risen to about 10 cents a litre above the average, and as a result the AA are calling for a price reduction to that effect.

To be fair to the oil companies, our monitoring shows there have been long periods this year when the margin was way below average (meaning they held off raising prices further), so they could argue that they are now recovering that loss, but nevertheless while a margin a few cents above average may be justifiable for a short period, we think 10c is too high to sustain for more than a couple of days.

We have spoken to some of the oil companies as well as commenting in the media (we don't expect petrol to drop however), so expect some developments soon!

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