Petrol prices vary dramatically within a short distance. We took a drive to try to understand why.

A bombshell government report into the fuel market shows people in Wellington and the South Island are paying 15 cents a litre too much for petrol, Labour says.

The gross profit margin on fuel at the pump had doubled to about 30 cents a litre in Wellington and the South Island over the past four years, and gone up by 5c a litre elsewhere, the report found.

The price of fuel – ignoring taxes – across New Zealand was now the highest in the OECD, it added.

SIMON O'CONNOR/FAIRFAX NZ Gull is having an impact on prices at the pump in the North Island.

Higher profit margins in the South Island and Wellington were "not explained by higher costs in those areas", the study found.

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Energy and Resources Minister Judith Collins, who ordered the report, said it had found "features which may not be consistent with a workably competitive market."

"I don't think it's acceptable and I don't think it's logical, and I think that what is pretty clear is that the more competition you have in the market, the better the market can operate," Collins said.

The study didn't say for sure whether fuel prices were reasonable or not, but she noted the report's authors said "we have reason to believe that they might not be".

That conclusion, though tentative, could spell big trouble for petrol companies. Z Energy's shares dropped 3 per cent to $7.65 when trading opened on the NZX.

The average Kiwi family spends $42.30 a week on petrol – only $8 less than their average weekly spend on meat, fruit and veggies.

AA spokesman Mark Stockdale said the report confirmed "what we have been saying" about fuel prices, but it was less clear what could be done.







Labour economic development spokesman Stuart Nash praised Collins for ordering the report when he said other ministers had not. "We worked really closely on this. Something like this should not be political."



The government study was carried out by consultants engaged by the Ministry of Business, Innovation and Employment (MBIE). It can be read here.

Fuel companies have yet to respond in detail.



Z Energy, Mobil and BP said they were reviewing it. "Z demonstrated to the study that the New Zealand fuel industry was more competitive than it has ever been in the past," chief executive Mike Bennetts said.



BP New Zealand managing director Debi Boffa said it believed it was earning "a fair return".



One possible explanation for rising profit margins was a "conscious change in pricing strategy" by Z Energy when it entered the market by acquiring Shell in 2010, the report said.



"Shell's strategy when it owned the business was to be slow to follow any price increases by its competitors, and quick to lower prices if crude oil prices fell.

"Z Energy has abandoned that strategy, and on the information available to us it appears that no other major has adopted it."

The report's authors said they were confident the difficulties that independent retailers such as Gull had buying fuel at short notice from wholesale suppliers in many parts of the country were also a "material factor".

Officials would now assess the report's recommendations and report back by November, Collins said.

The recommendations include technical changes to the wholesale market for petrol.

These would mean petrol retailers had less information about their competitors and would make it easier for independent retailers such as Gull to compete in more places.

Collins said the Government could also order the Commerce Commission to undertake another study of the market, using new powers it has announced it intends to give the watchdog.

The MBIE study had been unable to come to firm conclusions because of difficulties comparing information provided by companies and because "some very specific information that was required could not be obtained", she said.

But an amendment to the Commerce Act proposed last week would give the commission the power to conduct market studies and compel companies to provide comparable data.

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