AA expects price drop as Z, BP and Mobil move to display price of premium fuels

Friday, 24 January 2020

Commerce Minister Kris Faafoi was optimistic about the impact of the fuel market study in December.

The AA expects the extra cost of 95 and 98 octane petrol to plummet after BP, Mobil and Z Energy began falling into line with a demand to display premium fuel prices on their roadside boards.

AA policy manager Mark Stockdale said some petrol stations were charging 20 cents a litre more for 95 octane fuel than for 91, but he expected the price difference would drop to less than 10c a litre as pricing became clearer for motorists.

The Commerce Commission advised the Government in December to require petrol companies to display the price of premium fuels on their roadside boards.

Z Energy has been quick off the mark in starting to add the price of 95 octane fuel to its roadside boards, though the margin may not yet please all motorists.

Stockdale expected the Ministry of Business, Innovation and Employment to have regulations in place later this year.

* Z Energy offers to display all its fuel prices on its roadside signs

* AA calls for petrol companies to be more transparent about premium fuel prices**

The price difference between 91 and 95 octane fuel was once as low as 5 cents a litre, as evidenced by this Shell pricing in 2008.

But all three majors have started to make the change voluntarily ahead of time, including BP which had argued strongly against regulation.

BP spokesman Gordon Gillan said it had begun installing premium-fuel pricing on roadside signs at eight BP Connect sites in Auckland and Wellington.

AA policy manager Mark Stockdale says a drop in premium fuel prices may be main observable outcome from the Commerce Commission's market study into the fuel industry.

That work was expected to be completed by the end of February and the rollout at further sites would 'follow thereafter', he said.

Z Energy, which had backed regulation in submissions to the Commerce Commission, said it expected to complete the roll-out of 'transparent price boards' across its Z and Caltex networks by June.

Commerce Minister Kris Faafoi had made it clear on the day of the watchdog's report that he expected quick action, Z spokeswoman Victoria Crockford said.

Mobil spokesman Rob Fitzgerald said it also supported regulation but was not waiting for it.

Some petrol market changes could be implemented voluntarily without legislation, commission believed. (Video first published in January, 2020)

'We are currently conducting an internal evaluation as we prepare to begin work.'

The Commerce Commission said in its market study into the retail fuel industry that it was concerned petrol companies were charging a higher profit margin on premium fuels than on 91.

Requiring them to advertise prices on roadside boards would make it easier for drivers to shop around without driving up to the pumps, it said in its report.

95 and 98 octane petrol make up about 23 per cent of petrol sales, but the commission suspected some motorists might be buying it unnecessarily.

That was possibly due to 'a lack of understanding about whether it is needed for their car or the benefits it provides', it said.

Stockdale said the commission's recommendation on roadside pricing was one of the most significant to flow from its fuel competition study 'and something the AA has been advocating for over several years'.

95 octane fuel only cost 4c a litre more to produce and the retail price differential had been held at 9c for several years before increasing to unjustifiable levels, he said.

'The AA has received a lot of complaints from members about the price of premium fuel in particular.'

There hadn't been much change yet, but it was still early days, he said.

As more stations began displaying the premium on their roadside boards, the pressure for others to follow would 'snowball' and competition would increase, he forecast.

Petrol majors will also be required to display a price at their terminals at which they will wholesale fuels on a spot market, in a separate move that is intend to bolster competition, including for 91 octane petrol.

But they will be free to set that terminal gate price themselves and Stockdale forecast the impact of that change would be harder to discern.

'We don't know what increased wholesale competition will mean in terms of the pump price and we don't know when that would flow through.

'It is not like 'tomorrow the price will drop 10c'.'

But he forecast the impact of premium fuel advertising on roadside boards 'will be observable'.

'Our view is this will result in the price of premium petrol falling and the motorists buying premium petrol will see that change.'