Petrol prices to fall below $2, say analysts

Good news at the pumps for motorists planning to hit the road for holiday season

Experts say petrol prices are due to fall further as the oil slump deepens and the kiwi dollar rises. The Automobile Association said yesterday it would not be surprised to see prices fall below $2 if the current global trends held.

Drivers have already enjoyed 12 petrol price cuts since a peak in October, but there were more to come, says market analyst David Lewis of Milford Asset management.

“I think, if you look over the next few weeks, prices will continue to decline by another 10 cents or so,” said Lewis, Milford portfolio manager.

“And we don’t expect that we’re going to get back to prices as high as what we saw in September when they reached $2.40 or $2.50 per litre.”

Oil prices soared this year, through to a peak in early October, which coincided with a fall in the kiwi dollar and new fuel taxes.

But in a dramatic market shift, which caught many traders off guard, oil prices have slumped in the past two months.

They have fallen as much as one third since a peak on October 3.

The kiwi dollar has also bounced back, up about 7 per cent since the start of October.

“From an investor perspective, there is cause for concern and the reason is that this very sharp fall is an indicator of a softness in global demand — a softness in the global economy,” Lewis said.

AA has welcomed the drop saying it couldn’t come at a better time when more Kiwis traditionally hopped in their cars and headed away during the summer holiday period.

AA principal adviser Mark Stockdale said, although it was hard to predict, if petrol prices followed the same trend of previous years then it was possible that the price could fall below $2 during the summer months.

“The cycle that we’ve seen means the commodity prices are lower during our summer and higher during our winter and that’s kind of what we are now seeing.”

In the past New Zealanders had enjoyed lower fuel prices with some as low as $1.80 per litre for 91 during the Christmas break before prices gradually climbed to around $2.20 during winter.

“If that trend is typical, and it has been over the past few years, then, yes, the signs are that prices will continue to stay down through the summer period and may even fall just in time for our busy holiday driving season.”

One caveat to that prospect of lower pump prices is that crude oil has risen sharply in the past 24 hours on news of a trade war truce between the US and China and an oil supply deal between Russia and Saudi Arabia.

The Prime Minister also confirmed yesterday that the Commerce Commission will carry out a price study of the industry to look at the margins local companies are charging.

Lewis notes the margins in the pump prices have risen in the past decade.

“At a high level, the companies’ margins are a small piece of the total price you pay. But that margin has increased markedly over the last several years and is high relative other countries, including Australia,” he said.

“The Government’s initial conclusion last year was that basically, yes, there are indications that there could be some gouging — although they don’t use that term.

“But the market is not working well for consumers at the moment.”