22 Mar
Does crude oil really change fuel prices?

How much does crude oil actually affect fuel prices?

Petrol prices can be all over the place. Up one day, down the next, it can be frustrating to find that what used to be a bargain petrol station is now charging an arm and a leg without a fuel card. You might shake your head and curse the current price of crude oil.

But how does the market value of oil really affect fuel prices that much?

The crude oil factor

When people talk about the price of fuel, they often cite the effect of the current market price of crude oil as the primary factor that influences petrol costs. It's understandable: Our fossil fuels are refined from crude oil, so surely the more it costs the refinery to create, the more it costs to us, the consumer.

However, the Automotive Association (AA) describes how this is actually a false assumption. In New Zealand, there are five key factors that affect what you pay at the pump. Here they are, in order of most influential to least:

  • Fuel taxes (excise and ETS)
  • Importer margin
  • Refined fuel cost (imports)
  • GST
  • Shipping

As you can see, current oil prices are not directly linked to the cost of fuel when you buy it at the pump: just because crude goes down doesn't mean that fuel will too. But then why do people harp on about the price of crude oil when it comes to petrol costs?

The New Zealand factor

The AA describes how we actually import about half of our fuel.

New Zealand has a deregulated fuel market – there are no government-mandated prices that providers are required to charge. What this means is that our fuel prices have a lot more to do with the current worldwide commodity prices than with the costs of manufacturing fuel here in New Zealand. In fact, the AA describes how we actually import about half of our fuel.

So, what has crude oil go to do with it? As the prices increase, the worldwide cost of creating fuel goes up, which then trickles down to New Zealand due to our unregulated markets. Crude oil prices do not directly affect our prices in New Zealand, but it does increase the cost of the refined fuel cost mentioned above – which in turn makes us pay more at the pump.

What does this all mean for the average fleet manager? Crude oil prices are certainly important, but any damage to your fuel card balance is more to do with taxes and importer margins than a 10 cent drop in crude oil.

While crude oil might be very cheap at the moment, don't expect the pumps to necessarily reflect that! If you want to get the best deals on petrol, you need a fuel card. Get into contact with the team here at Card Smart and find out how we can help you stamp down those everyday fuel costs!