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New Zealand market and pricing update

6 September 2005

New Zealand market and pricing update

Further to BP New Zealand’s market and pricing update of 5 August 2005, there have been significant international developments in the oil and fuel markets. It is important to BP that these developments are well understood by media, commentators and our customers.

This paper seeks to explain these developments and their impact on domestic fuel pump prices in New Zealand.

While the prices of crude oil and refined fuels have eased slightly, there is still significant upward pressure on New Zealand pump prices.

In the last three weeks the cost of refined petrol on the international market has increased by almost 30 per cent.

At the moment, the New Zealand fuel pump prices do not reflect the true cost of the product. Since the last increase at the pump on August 31, refined petrol has increased by a further NZ$14 per barrel. For BP, this has led to negative retail fuel margins over the last week in New Zealand.

For there to be a downward movement in pump prices at BP service stations in New Zealand, there would need to be a continued easing of international prices. By way of one example, the cost of refined fuel would need to fall by approximately US$10 per barrel.

BP is hopeful the international market situation will improve as more refining and production capacity is restored in the USA in the wake of Hurricane Katrina. As soon as international prices ease sufficiently we will pass that benefit on to motorists.

BP will always compete vigorously on price and offer the lowest price it can to consumers. Negative margins on retail fuel sales over the last week are evidence of that.

There has recently been some confusion on how domestic prices are set in New Zealand. The oil industry globally works on a replacement cost basis, which means prices are based on what it costs to replace the fuel that is sold today. This has been the practice for well over 20 years, it is a universally accepted accounting principle and, above all, it is fair and transparent.

BP buys refined fuel from a number of Asia/Pacific refineries, including from the NZRC. The prices we pay for that fuel are set by the international benchmark price.

The graph below shows the relationship between the international cost of refined fuel, crude oil and domestic pump prices.

Due to the significant interest in fuel prices at the moment, BP has set up a new section on its web site dedicated to daily pricing updates. Each afternoon this section will be updated at www.bp.co.nz/market_pricing.html . This is a part of BP’s commitment to open and transparent communication with our customers and stakeholders.

For more information please see BP’s Facts about fuel pricing at www.bp.co.nz/about/pricing/index.html or the previous market update at www.bp.co.nz/bin/press/item.pl?id=1123199177&showarchive=

ENDS

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