Why New Zealand Fuel Prices Are Rising and When They Will Drop
- New Zealand fuel prices have climbed above $3 a litre for 91 petrol across the country, driven by renewed volatility in Middle Eastern oil markets, surging shipping costs,...
- Retail fuel costs have fluctuated sharply since conflict broke out in the Middle East earlier this year.
- Westpac chief economist Kelly Eckhold explained that oil prices edged back up over US$100 a barrel following stalled negotiations.
New Zealand fuel prices have climbed above $3 a litre for 91 petrol across the country, driven by renewed volatility in Middle Eastern oil markets, surging shipping costs, and a weaker local currency. The average price at the pump sits at roughly $3.40 a litre, according to industry experts who warn that relief is unlikely in the near term.
Middle East Conflict Stalls Oil Relief
Retail fuel costs have fluctuated sharply since conflict broke out in the Middle East earlier this year. Prices experienced a brief reprieve when a ceasefire looked to be taking effect, which allowed more oil to travel out of the area. That trend quickly reversed.
Westpac chief economist Kelly Eckhold explained that oil prices edged back up over US$100 a barrel following stalled negotiations.
“They were under US$100 because there was talk from the Qataris and the Iranians that there were some kind of talks going on … but then later in the day it came out that the Iranians had a list of demands they wanted satisfied before they could commit to significant negotiations, including opening the Strait.”
Eckhold noted that U.S. difficulties in agreeing to terms, particularly concerning nuclear programs, pushed prices upward again. While oil flowed relatively easily from the region during June and July, conditions have since tightened, heavily impacting commodity market sentiment.
Skyrocketing Tanker Rates and Maritime Risk
Crude oil prices are only part of the retail calculation. AA principal policy advisor Terry Collins pointed out that external pressures from refining and maritime transport play a massive role in current pump prices.
While record-high refining costs earlier in the year distorted the market, current expenses are dominated by the logistics of moving oil out of the Middle East. Collins cited quotes of up to US$1 million for ship insurance through the Strait, with large tanker rates jumping by nearly 1,000 percent.
A Falling Local Currency Hits Import Costs
Compounding these pressures is a falling New Zealand dollar. All international trading occurs in U.S. dollars, and the local currency dropped from nearly US$0.60 in late August to US$0.56.
Eckhold stated that Westpac models future pump prices by taking US dollar futures, adjusting them for the weaker exchange rate, and factoring in a standard two-week lag before changes hit local service stations.
China’s Depleted Reserves and the Petrol-Diesel Split
Infometrics managing director Gareth Kiernan suggested that international price shifts over the preceding two or three weeks may not have fully filtered through to consumers yet, leaving room for further upward pressure.
Kiernan also pointed to increased demand from China, which has been running down its reserves quite substantially and suppressed international demand artificially.
The divergence between petrol and diesel prices has also widened over the past three to six months. Eckhold attributed this split to differing inventory shortages between the two fuels, noting that consumers find it easier to substitute away from petrol when prices escalate.