Why AA predicts fuel prices are about to drop sharply

Photo: NZ Herald
Some service stations, including in Auckland, have already begun to display four or five prices of fuel on their sign boards. Photo: NZ Herald

The AA says the cost of 95 and 98 octane petrol will drop ahead of the general election as fuel retailers move to display the price of premium fuel, ahead of any formal regulation.

Some service stations are charging up to 40 cents extra per litre for 95 and 98 octane fuel compared to 91 octane, but this is expected to be slashed drastically as the prices for all fuel grades become more transparent, AA regulations adviser Mark Stockdale says.

The difference was around 5c per litre a decade ago.

Stockdale said fuel retailers were compromising competition and keeping motorists in the dark by not displaying the price of premium grade fuel.

"At the moment the price is not displayed and so that's why we've seen, around the country, a price disparity of 20 cents a litre or more between 91 octane and the premium grades. It is compromising competition and it makes it hard for motorists to shop around and compare prices."

Currently there is no legal requirement for fuel retailers to display the price of premium-grade fuels on their sign boards, and those that do, do so voluntarily, but this is set to change as part of the Government's move to regulate the cost of fuel.

Service stations had been able to "hide a much higher price for premium", which was "not justified", for more than a decade, Stockdale said.

The lack of transparency around premium fuel prices had been an ongoing issue, and the AA had been advocating for a mandate to require service stations to display the prices of all fuel that they sold, he said.

"By doing that, we believe that the service stations simply won't advertise a price for the premium grade that is 20c or 30c or 40c a litre higher than 91 octane. That price discrepancy is completely unwarranted.

"We think as a result of having to display the price under a future regulation, that will bring the price down - and we think that is going to happen sooner rather than later."

AA is privy to a plan to introduce such a regulation, but was unable to comment on when this would come into effect, other than "ahead of the election".

Some service stations, including in Auckland, have already begun to display four or five prices of fuel on their sign boards. This comes after Minister Kris Faafoi wrote to fuel companies in December requesting this be done, shortly after the Commerce Commission report on the market was released, Stockdale said.

Shortly after the report came out Z Energy said it had implemented the price of premium prices to its boards at stations in Auckland and it would be a six-month exercise to roll it out to all of its stations throughout the country by June.

BP and Mobil have also said they would work to roll this out to their stations. Smaller retailer Waitomo has said it would include this on all of the new sites it is building.

"It is starting to happen. Where it's happening, we think the price will be lower, and as it rolls out to more of the country we will start to see a snowball effect," Stockdale said.

"We expect the price of premium petrol will fall."

Where the price of premium fuel is displayed, motorists would notice significant savings at the pump. Similar regulations were implemented in New South Wales and Queensland several years ago and had the same result, he said.

Stockdale said the actual cost to produce 95 octane was 4 cents a litre higher compared to 91 octane.

The difference in price between 95 and 91 octane should be less than 10 cents a litre, he said. It used to be just 5 cents about 10 years ago.

Prices began creeping up about a decade ago, but in the last five years had accelerated. Throughout 2018 and 2019 the prices has reached new highs, he said.

Where premium prices of fuel were displayed already, voluntarily, the difference had been reduced to about 13 cents. "If we see more competition through more service stations displaying the price, we hope that will fall even further."

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