Opec announcement will set petrol price

AUCKLAND: The crude oil price surged so much this year it sparked fears petrol could be heading towards $3 a litre.

Then it crashed so hard we are now more likely to see $2 a litre by Christmas.

Can prices go much lower? This week’s supply announcement by Opec is likely be a big price driver in the next few weeks.

It is essentially a test of US President Donald Trump’s leverage over Saudi Arabia versus that of Russian President Vladimir Putin.

Mr Trump wants oil prices lower but Mr Putin wants the opposite.

The latest news is that Opec has agreed to cut production but as yet there is no word on by how much.

Analysts say a cut needs to exceed 750,000 barrels a day to push prices up. Any less than that and they’ll likely fall.

But Milford Asset Management portfolio manager David Lewis said that regardless of the final outcome there is likely to be a stabilisation in the oil price.

While he still saw potential for pump prices to fall by a few more cents before Christmas if current markets conditions held, he expected to see the recent volatility ease.

‘‘Part of the reason the price got so high was concerns about sanctions on Iran and a reduction of supply out of Iran,’’ he said.

‘‘Then more recently we’ve seen Mr Trump encouraging Saudi Arabia to continue producing at a higher level to try and keep that oil price down.’’

Mr Trump wants a lower price to support the US economy and had quite a bit of leverage right now in the wake of the revelations about Saudi involvement in the murder of journalist Jamal Khashoggi, Mr Lewis said.

But the 30%40% oil price swing seen in the past few months was unusual, he said.

‘‘We think that should help the price at the pump to stabilise,’’ he said.

Meanwhile, the Government has announced a formal inquiry into competition in the retail petrol market.

Mr Lewis noted there was evidence New Zealand margins were high by global standards and it was possible the Commerce Commission would put pressure on fuel companies to cut margins.

But it was important to remember that was likely to move the price just a few cents a litre. — NZME