MED Revision Of Fuel Price Margins

MED improves petrol and diesel price margin calculations

The Ministry of Economic Development has revised the way it calculates petrol and diesel price margins, which are published weekly on its website http://www.med.govt.nz/oil/prices/weekly/.

The price margin is the difference between the New Zealand retail and imported product price, which covers the importer’s domestic transportation, distribution and retailing costs, as well as wholesalers’ and retailers’ marketing margins.

The Ministry began work on the methodology it uses to calculate these margins in late 2005, when it became apparent that changes in fuel specifications and other issues were impacting on the accuracy of these calculations. The new calculations use more representative international benchmark prices, and improved freight and insurance cost estimates.

The most noticeable change is for diesel, where oil companies have found an increasing difference between the cost of high sulphur diesel and the new lower-sulphur diesel and have consequently had to pay a higher premium for this fuel. This is due to a number of Asia-Pacific countries changing to lower-sulphur diesel at about the same time as New Zealand and constrained refining capacity internationally for the new diesel product.

For the purpose of comparison, we have contracted consultants Hale & Twomey to recalculate the margins back to the start of September 2005. These recalculations confirm a lesser margin through this period than previously reported.

Petrol & diesel margins will continue to be reported weekly at the beginning of the week on the MED website for the preceding Friday week end (three days earlier than previously). These may be accessed at http://www.med.govt.nz/oil/prices/weekly/.

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