Petrol prices getting close to last year's record. What about your city or town?

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#2320073 19-Sep-2019 08:26

So why not raise the price 3 months from now, as it enters the supply chain?

A single company doesn't constitute a monopoly. Three companies can still be anti-competitive if there's a "wink-and-a-nod' relationship.

Just look at the "Gull" effect, where prices seem to miraculously drop whenever a competitor shows up.

It happened here in Wellington, where Caltex dropped their prices when Waitomo showed up. Quite a nice coincidence.

Oblivian

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#2320080 19-Sep-2019 08:37

Couple of things to keep in mind.
Gull import pre refined product from Singapore.

The rest rely on raw product/Marsden and bulk storage.

Waitomo, npd, gas, Pak n save.. are all selling (at retail face or less) product purchased from one of the big 3 at wholesale while still clipping the ticket.

Scray thought.

frankv

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#2320091 19-Sep-2019 08:54

A single company doesn't constitute a monopoly. Three companies can still be anti-competitive if there's a "wink-and-a-nod' relationship.

Actually, a single company *does*, by definition, constitute a monopoly. Three companies constitutes an oligopoly. "Wink and nod" relationships are illegal. Which is not to say that it doesn't happen. Typically, the less competitors, the less intensity of competition.

It's not clear *why* oil prices shouldn't drop as quickly as they rise.

But I'll speculate that when there's a sudden increase in the spot price of crude, petrol resellers may buy oil (or petrol) on the futures market, hedging against even greater price increases in the future. The first to do this will potentially save a lot of money if the crude price remains high or goes higher, the last in will save less as the futures market responds to the demand. But, when the price drops again, the resellers still have those futures contracts, and are forced to buy at the increased price. And these prices are passed on to the consumer.

tdgeek

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#2320094 19-Sep-2019 08:58

Wink and Nod is a cartel. Not common but ask Air New Zealand freight department

kingdragonfly

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#2320101 19-Sep-2019 09:03

What we are paying for when we buy petrol

Stuff by Bonnie Flaws

The Commerce Commission says consumers are paying too much for petrol.

A draft report on the price of retail fuel was released on Tuesday by the Commerce Commission, which said fuel companies appear to be pocketing more than it would consider a "reasonable return" in a "competitive market".

In the March 2019 quarter, New Zealand had the third highest pre-tax premium petrol and diesel prices in the OECD, the report says.

Two factors are at play.

Firstly, the infrastructure network that the oil majors, Z Energy, BP, Mobil have gives them an advantage over current and potential fuel-importing rivals.

Secondly, wholesale supply agreements between the majors and their resellers reduces competition, the report says.

...Collectively, Z Energy, BP, Mobil and Gull control the supply of fuel to more than 1,300 retail sites under 20 different retail brands, either directly or indirectly through a distributor or reseller.
...

https://www.stuff.co.nz/business/112681819/what-we-pay-at-the-pump-why-does-the-price-of-petrol-vary-so-much

sbiddle

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#2320115 19-Sep-2019 09:16

kingdragonfly: So why not raise the price 3 months from now, as it enters the supply chain?

A single company doesn't constitute a monopoly. Three companies can still be anti-competitive if there's a "wink-and-a-nod' relationship.

Just look at the "Gull" effect, where prices seem to miraculously drop whenever a competitor shows up.

It happened here in Wellington, where Caltex dropped their prices when Waitomo showed up. Quite a nice coincidence.

Why not raise the price in 3 months? Because it'll be illogical to run a business that way. How many people would suddenly complain if petrol prices suddenly started rising 3 months from now if oil (for example) was 50% of the price it is now? It is standard practice globally for many companies who import large quantities of product regularly to set pricing based on current commodity costs, regardless of whether you've actually paid a higher price for it. This smooths out pricing.

It's no coincidence Caltex dropped their prices when Waitomo showed up. It's called competition. That's proof of how competitive the fuel market is and how there is no cosy "wink and nod" relationship between three players.

The problem in NZ right now is that this intense competition has broken the retail fuel market.

Gull are simply importing 100% of their fuel and you can argue they do offer a slightly lower quality refined fuel, paying less excise tax on some of it because it's part biofuel rather than 100% mineral, and running unattended operations with a very efficient supply chain. Their cost of doing business is lower than the other players and they can pass on those costs.

This has meant the other 3 big players who have a higher cost of doing business have been forced to compete. They all own a share of the refinery and refine fuel here that can have a higher production cost than importing it so rely on both sources for their fuel. It's also worth remembering while Gull say they're a "little player" they're actually over twice the size of NZ's biggest player (Z).

Being forced to compete means selling your product below cost in some areas. Petrol being sold in Rotorua for under 190cpl right now is being sold at a loss. Petrol being sold in Auckland for 210cpl is being sold at a loss when the regional fuel tax is factored in. 91 being sold in Queenstown for less than Dunedin or Christchurch is a problem.

To compensate for these they're having to cross subsidise petrol pricing. Those in Wellington paying 241.9 for petrol are subsidising cheaper petrol sold in Auckland.

Remember overall gross margins from the big companies sit around 4cpl. That's an incredibly small margin..

kingdragonfly

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#2320135 19-Sep-2019 09:53

Contrary to your logic, the "Gull Effect" points to a lack of competition.

Only when a competitor shows up, do prices drop.

To me it looks like the sudden drop when a competitor shows up is an attempt to crush competition, by using deep pockets.

If it was strictly based on the quality of the petrol, as suggested, then why don't the better gas stations maintain their prices for their superior petrol?

As the Stuff article says

Firstly, the infrastructure network that the oil majors, Z Energy, BP, Mobil have gives them an advantage over current and potential fuel-importing rivals.

Secondly, wholesale supply agreements between the majors and their resellers reduces competition, the report says.

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MikeB4

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#2320147 19-Sep-2019 10:09

They talk of the Colombian drug cartels they have nothing on the New Zealand Oil cartel and energy cartel.

sbiddle

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#2320150 19-Sep-2019 10:17

kingdragonfly: Contrary to your logic, the "Gull Effect" points to a lack of competition.

Only when a competitor shows up, do prices drop.

To me it looks like the sudden drop when a competitor shows up is an attempt to crush competition, by using deep pockets.

If it was strictly based on the quality of the petrol, as suggested, then why don't the better gas stations maintain their prices for their superior petrol?

Better gas stations do maintain their margins with superior fuel and product offerings. This is exactly why they don't match Gull 91 or 95 biofuel prices.

Competition exists without the "Gull effect" - petrol in Lower Hutt an an example is typically around 10cpl less than Wellington despite Allied not being a price leader.

The current model of cross subsidies of fuel (particularly subsididing fuel in Auckland by the rest of NZ) by the big 3 is slowly imploding and it's going to be a big mess once that implosion happens. I have sympathy for those working on pricing for all the fuel companies at present - when you're talking about gross margins of just over 4 cpl, maintaining those when you have such huge variances across the country is becoming an incredibly difficult task.

MikeB4

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#2320154 19-Sep-2019 10:23

sbiddle:

Better gas stations do maintain their margins with superior fuel and product offerings. This is exactly why they don't match Gull 91 or 95 biofuel prices.

Competition exists without the "Gull effect" - petrol in Lower Hutt an an example is typically around 10cpl less than Wellington despite Allied not being a price leader.

The current model of cross subsidies of fuel (particularly subsididing fuel in Auckland by the rest of NZ) by the big 3 is slowly imploding and it's going to be a big mess once that implosion happens. I have sympathy for those working on pricing for all the fuel companies at present - when you're talking about gross margins of just over 4 cpl, maintaining those when you have such huge variances across the country is becoming an incredibly difficult task.

There is Waitomo in Upper Hutt and that is having an impact with prices there at circa $2.10. BP and Z are still high though in Hutt City at circa $2.30

hairy1

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#2320155 19-Sep-2019 10:23

sbiddle:

Better gas stations do maintain their margins with superior fuel and product offerings. This is exactly why they don't match Gull 91 or 95 biofuel prices.

Competition exists without the "Gull effect" - petrol in Lower Hutt an an example is typically around 10cpl less than Wellington despite Allied not being a price leader.

The current model of cross subsidies of fuel (particularly subsididing fuel in Auckland by the rest of NZ) by the big 3 is slowly imploding and it's going to be a big mess once that implosion happens. I have sympathy for those working on pricing for all the fuel companies at present - when you're talking about gross margins of just over 4 cpl, maintaining those when you have such huge variances across the country is becoming an incredibly difficult task.

That's what Excel was invented for! 😜

My views (except when I am looking out their windows) are not those of my employer.

kingdragonfly

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#2320183 19-Sep-2019 10:51

A PR piece From Gull, if anyone is interested. Obviously not an independent piece.

"Gull Effect" multiplies in the South Island

South Island, 13 September 2019 – Gull, today confirmed a launch date for their first South Island site as well as some detail around their roll out plans for the rest of the South Island with a second site to open in Gore in October.

Dave Bodger General Manager Gull New Zealand says South Island motorists have been continually requesting that the “Gull Effect” moves south many years.
...

http://www.scoop.co.nz/stories/BU1909/S00334/gull-effect-multiplies-in-the-south-island.htm

sbiddle

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#2320188 19-Sep-2019 11:00

kingdragonfly:
Dave Bodger General Manager Gull New Zealand says South Island motorists have been continually requesting that the “Gull Effect” moves south many years.

91 is already 19c cheaper in Te Anau and 16c cheaper in Lawrence than it is this morning in downtown Wellington. The South Island isn't doing as badly as they think.

Guilliman

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#2320521 19-Sep-2019 16:41

The self-serve Waitomo around Airport Oaks used to seem cheap but it seems they are now pricier than Gull.

WyleECoyoteNZ

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#2320534 19-Sep-2019 17:03

MikeB4:

They talk of the Colombian drug cartels they have nothing on the New Zealand Oil cartel and energy cartel.

Agreed.

Johnsonville this morning:

BP = 236.9

Z = 236.9

Waitomo Johnsonville 208.9

Catlex Hutt Road 208.9

Waitomo Thorndon 208.9

And I'm fairly certain earlier in the week the BP & Z Johnsonville were both 239.9, so price at those two has softened slightly.

As of writing this, it looks like BP & Z gone down 2c more to 234.9 (from Gaspy)

So even though the 2 big players in Johnsonville (Z & BP) are in very close proximity to Waitomo, they are still charging like a wounded bull. Even BP Johnsonville last night had cars 2 deep during the Wednesday offer of 10c off a litre, still making it more expensive than Waitomo

One thing I've seen this week with the sharp price rise is that the Caltex Hutt Road during peak evening times (5-6pm) always has queue's 4-5 cars deep.

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