Global factors will keep petrol prices high, despite a recent fall, experts say.
The price of 91 octane petrol is down on average of 22 cents in the course of less than a month, to $2.84 a litre according to fuel price tracking app Gaspy. Prices fell after a letter from the Government last Friday questioned fuel companies’ profit margins.
But experts say that global factors such as the Russian invasion of Ukraine and the poor performance of the New Zealand dollar meant there would be pain at the pump for a long time to come.
ANZ economist Finn Robinson said it was hard to see prices coming down when the biggest drivers of petrol price increases were out of the country’s control.
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Oil spot prices are at USD$96 (NZ$154) a barrel, and remained elevated when compared to the USD$72 a barrel at the start of this year, he said.
ANZ predicted the price of oil would ease to USD$95 a barrel by the end of 2023, which meant we could be in for a considerable period of high fuel prices, he said.
“Volatility remains extreme. Oil price forecasts will depend on supply disruptions, the strength of the global economy as central banks around the world hike interest rates, and on geopolitical developments surrounding the Russian invasion of Ukraine.
“It is hard to see a situation when we will ever get back to $2 a litre,” Robinson said.
If ANZ predictions came true, and the global price of oil went down to USD$95 a barrel, then domestic petrol prices could be expected to come closer to $2.60 to $2.70 a litre, he said.
But that price range would heavily depend on the strength of the New Zealand dollar, and what the Government decided to do with the fuel excise tax, he said.
High inflation could also keep prices high, as company costs and higher salaries ate into petrol retailers’ profit margins, he said.
Automobile Association principal policy adviser Terry Collins said prices would remain high and there was nothing anyone could do about it.
“Last year we found the least amount of oil anyone has found in the last 75 years, when you combine that with a huge underinvestment in the sector, the war in Russia, it all just adds huge costs to oil,” Collins said.
While it had aggravated prices in the oil market, the invasion of Ukraine had only put further strain on an industry that faced costs rising at an extremely fast rate, he said.
“Covid-19 had already hit a huge amount of oil production. So when Russia invaded Ukraine that took a huge amount of available oil barrels off the market. It needs to be found somewhere and that is driving up the price.”
Collins said the International Energy Agency had predicted that in the next few years oil demand would increase, as rising middle classes in India and China consumed more of the fossil fuel.
“We will never get back to a world of cheap oil.”