13 May 2015

An end to extreme fuel discounts

7:21 pm on 13 May 2015

The AA and Z Energy say the rest of the country has been paying higher prices to subsidise the extreme fuel discounts on offer in some parts of the North Island.

Most Gull service stations have resisted price hikes in recent months, and other nearby stations were forced to lower their charges to compete.

Service stations are warning customers not to take risks to stock up on cheap fuel.

Photo: AFP

This week, Gull decided the price war had to end, and it raised its price at the pump to just under the national rate of $2.079 a litre.

In January, Brent Crude oil bottomed out at around $US50 a barrel, and at the end of that month, 91-octane was selling here for about $1.73 a litre.

Now, a barrel of crude is in the high sixties, and the pump price for 91-Octane is firmly above the $2 a litre mark.

Until now Gull has managed to keep its price low, but its general manager Dave Bodger said that had become unsustainable.

"It's not a decision that we've taken lightly but it's about having a sustainable business model," he said.

"Some people have got some excellent value on fuel for a long time, and a lot of people outside of Gull areas hadn't received that, but we got to the point where we couldn't continue to deliver that difference in price."

He said Gull sets the price at 50 of its stations in the North Island and that neighbouring fuel retailers had to match that low pricing in order to remain competitive.

But those companies readily conceded they were making a loss on the fuel, with discounts in some places as high as 34 cents a litre according to the AA.

In a statement, a Z Energy spokesperson, Jonathan Hill, said he did not know why that level of discounting was happening in the first place.

"We always felt the discounting in the market was unfair to the majority of motorists and was clearly economically unsustainable. Motorists in non-discounted regions were effectively subsidising these discounts."

Mr Hill said that when a product was being sold at a loss, others paying the market price were effectively subsidising it.

But BP spokesperson, Jonty Mills, disagreed.

He said while the discounted prices were unprofitable, they were not being subsidised by other motorists.

"No, I don't think [those low prices are being subsidised]: what it does mean is that customers in some of these regions have enjoyed heavy discounting which is unsustainable," he said.

"So the rest of the country, from a BP perspective, are getting what we consider to be our national price at sites that we control across the country."

The Automobile Association's petrolwatch spokesperson, Mark Stockdale, agreed those discounts were being funded by the rest of the country's higher prices.

He said while that level of discounting had come to an abrupt end, people in those areas were still getting a good deal.

"They haven't been paying above $2/litre for perhaps over a year - so that's going to come as a bit of a rude shock," he said. "It's a small comfort, but the price that they're paying is still below the national price."

Mr Stockdale said regardless of where someone was in the country, it paid to shop around to get the best deal.