Only way is up for petrol prices
As oil hovers above US$70 a barrel, New Zealand fuel costs will stay high for now
Okay, first the bad news. We’ve all started to pay at the pump for Donald Trump’s tough call on Iran, which sent oil prices spiking above US$70 a barrel at the start of the month.
And it’s going to get worse before it gets better.
Since that initial spike, barrel prices have continued to rise. Brent crude touched US$80 at the weekend.
The machinations of US foreign policy have continued to push it up. For example, the resolution of trade tensions with China at the weekend sparked a rally — on relief that the global economy will stay strong. More tough talk this week on Iran sanctions is unlikely to help.
So odds are there are more rises to come at the pump in the coming days as the wholesale price rises continue to flow through.
Analysts don’t see a reversal anytime soon. The price on futures markets has started to rise.
Investment bank Morgan Stanley is picking oil is on its way for US$90.
There are even some commodity hedge funds starting to place bets that it will trade at prices as high as US$130 by the end of 2020.
Considering that we had all become very used to low oil prices since the big crash of 2014. The return to normalcy was always going to feel like a shock. In fact, as recently as 11 months ago, Brent crude was worth just US$45 a barrel.
We are facing the prospect of it doubling in 12 months with the added pressure of the kiwi dollar being worth at least 5 per cent less than it was back then.
On top of that, we have new local fuel tax — an 11.5c per litre hike for Aucklanders from July. And a nationwide tax hike of between 9c and 12c per litre over four years.
So, by all means, bring on a Commerce Commission inquiry into retail pricing. It’s good to be sure we’re not being ripped off — especially in the regions where the differentials do seem harder to explain.
But get used to paying more for petrol.
Oh wait . . . what about that good news? Well there’s not much.
The rising price also reflects higher demand on the back of a stronger
So odds are there are more rises to come at the pump in the coming days as the wholesale price rises continue to flow through
global economy — with upside for New Zealand exporters.
If we had another global financial crisis you can be sure that would crash oil prices — but nobody wants that.
Also, while the rise might politically be bad timing for this Government, fiscally it’s all good news.
The higher pump price will lift the GST tax take, giving the Government more headroom to invest back into areas like education and health — or more roads.
Higher prices for carbon-based fuels are also good news for green alternative energies of course. That’s important. Maybe the Government could send even a bit more of the tax take back that way.
Just don’t hold your breath for oil to run out. New fracking technology has opened up massive reserves of shale oil in North America.
In fact over-production by the US shale oil producers was one of the reasons for the price crash in 2014.
Those guys are kicking back into gear now as the economics become viable again.
This time around they’ll have the added momentum of fair political winds, with a carbon loving President in the White House to help them avoid those pesky environmental regulations.
The upside there — though clearly not for anyone sane enough to care about global warming — is that it should keep an upper limit on prices.
In other words, US frackers will increase production as the price rises — making a spike back to US$130 a barrel very much an outside bet.