For decades, New Zealand motorists have grown accustomed to diesel fuel being the cheaper option at the pump. That longstanding dynamic has shifted dramatically in recent months, with diesel now consistently exceeding petrol prices. The change, while seemingly small – currently around a cent per litre – represents a significant reversal driven by global refining costs and geopolitical instability, and signals potential economic ripples across key sectors.
According to data from user-generated fuel price tracking app Gaspy, 91 octane petrol currently averages $3.42 a litre, while diesel has edged ahead to $3.43 as of mid-April 2024. This price flip is particularly striking when considering the recent trends: petrol prices have risen by 35.77% in the last 28 days, while diesel has surged by a much steeper 85.09%, more than doubling the rate of increase. The impact is being felt by businesses and consumers alike, raising concerns about inflation and the cost of living.
The Refining Cost Surge
While crude oil prices certainly play a role, experts say the primary driver behind the diesel price hike isn’t the oil itself, but the cost of refining it. Diesel, a denser fuel, is inherently more expensive to produce than petrol due to the complexities of the refining process. Traditionally, refiners yield about two barrels of petrol from every three barrels of crude oil, compared to just one barrel of diesel. However, this inherent cost difference was historically offset by tax structures in New Zealand.
“We don’t see that [price difference] over here, because we put fuel excise duty and ACC and some other regional taxes on petrol,” explains Terry Collins, principal policy advisor at the Automobile Association (AA). “Traditionally in the past, those taxes have made the price of petrol more expensive.” But that balance has been disrupted. According to Collins, diesel refining costs accounted for around 14% of the final price in New Zealand in January. That figure has now jumped to over 40%, a more than 200% increase.
Petrol refining costs have as well risen, but at a more moderate pace – around 60% over the same period – allowing diesel prices to surge ahead. “Although we tend to seem at oil as the big driver, of late, it’s actually been the refining cost,” Collins told 1News.
Global Factors and New Zealand’s Vulnerability
The surge in refining costs is linked to several global factors, including disruptions caused by geopolitical tensions, particularly in the Middle East. While the article references “the conflict in Iran,” it’s essential to note that broader regional instability and concerns about supply chain security are contributing to the increased costs. The International Energy Agency (IEA) has repeatedly warned about the potential for further disruptions to global oil markets.
New Zealand’s situation is further complicated by its complete reliance on imported, fully refined fuel. The closure of the Marsden Point Oil Refinery in 2022 meant the country lost its domestic refining capacity, making it entirely dependent on international markets and vulnerable to global price swings. Before the closure, New Zealand could process some crude oil domestically, providing a buffer against external shocks. Now, any international disruption flows directly through to local prices.
Beyond utes: The Impact on the ‘Heavy Fleet’
While the rising cost of diesel is noticeable to drivers of diesel-powered vehicles like utes, the real concern lies with the “heavy fleet” – the trucks, tractors, and machinery that underpin New Zealand’s logistics, farming, and food production industries. “What the Government is really worried about is the heavy fleet,” Collins said. “Our logistics, our farming equipment, all of that type of horticultural machinery, tractors, harvesters, the trucks that take the produce to the processor… It’s that part of the economy is very susceptible to prices in diesel.”
Diesel is difficult to substitute in these applications, meaning businesses have limited options to mitigate the increased costs. Unlike passenger vehicles, where consumers might consider switching to petrol or electric alternatives, heavy machinery largely relies on diesel fuel. This inelastic demand means that even relatively small price increases can have a significant impact on operating costs and, consumer prices.
The New Zealand government has emphasized that the country is not facing a fuel shortage and has fuel resilience plans in place. However, the current situation highlights the vulnerability of a small, import-dependent nation to global energy market fluctuations. The government is currently reviewing its fuel security strategy, with Nicola Willis outlining phase one of the plan in March 2024.
Looking ahead, the immediate future of diesel prices remains uncertain. The next official data release on New Zealand’s fuel stocks is scheduled for the end of May, which will provide a clearer picture of supply levels and potential future price movements. Consumers and businesses will be closely watching these developments as they navigate a changing energy landscape.
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