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14/5/2018 — Oil and Gas
Petrol at $3 a litre?

Liam Dann, ranked as the New Zealand Herald’s business editor at large, was reported on the website newstalkzb yesterday as saying New Zealanders are about to get a shock at the petrol pump.

Dann reminded readers that oil prices spiked to their highest level since 2014 last week as US President Donald Trump pulled out of the Iran nuclear deal and threatened to impose new trade sanctions.

By close of play on Friday Brent Crude Oil was trading above $US77 ($NZ111) a barrel - a 25% rise since its most recent low in February. It is a rise of about 90% since the price hit rock bottom in January 2016.

Oil prices crashed in 2014, plunging from $144 a barrel to a low of just above $57. Before the GFC they had traded as high as $193 per barrel.

So, Dann said, without excusing any unfairness in regional pricing or grumbles about tax, it's safe to say petrol prices were always going to be on the rise. It's also likely a rise was on the cards regardless of Trump's latest decision - but it hasn't helped.

You don't have to be a “raving conspiracy theorist” to see oil prices and US foreign policy have a long and intimate relationship - particularly when comes to the Middle East.

Dann said it has had an immediate impact, accelerating the oil price rise and even reigniting Wall Street markets as investors piled in to energy stocks.

“It all looks like a win-win for the US economy, unless you count the environmental cost or the risk of it backfiring and causing a war - which Trump and his supporters clearly don't,” he said.

Meanwhile, back in NZ the politics of petrol don't look so good for the Government. Dann said that for the average business owner or consumer it's going to be a lousy time to raise revenue by adding fuel taxes.

“The opportunity to do it more painlessly was there for the taking from 2014 until late last year – regular price falls were so common drivers would hardly have noticed.

National did hike the tax on a nationwide basis but rejected calls from Auckland mayor Phil Goff to allow a regional levy because of an ideological opposition to allowing more revenue collection in the regions.

“So it's going to hurt a bit on July 1,” Dann wrote.

Liam Dann said that to make matters worse the Kiwi dollar was expected to fall further compared to the $US, putting more pressure on local pump prices.

“I know I've written that before – me and every currency commentator for the past five years, probably. But the US economy has taken a lot longer than expected to get off the ground,” he said.

This time around, the rate hikes have begun - sometime before September the US Federal Reserve could lift the official cash rate to 2% - taking it above NZ's official cash rate (1.75%) for the first time since 2001.

Back then the Kiwi dollar was worth less than US50 cents.

“I hate to think about what we'd be paying for petrol if the kiwi went that low again - or if oil went as high as $193 a barrel. Are you ready to pay $3 a litre - it's not that far-fetched?”

Dann said that’s not just your car, it is transport costs on almost everything you buy, air travel and production costs for anything made of plastic or synthetic materials.

Source: newstalkzb.co.nz

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Liam Dann: Photo: NZ Herald.
At the petrol pump. Photo: Duncan Brown, newstalkzb.