The Middle East conflict is driving up oil prices, which in turn are lifting petrol costs. According to economists, petrol prices could feasibly hit $4 per litre.
Westpac chief economist Kelly Eckhold warned that a prolonged crisis could push oil to US$200 per barrel, driving retail petrol prices above $4.
Westpac noted last week that refining margins had risen from US$20 (NZ$34) to about US$35 per barrel, magnifying the impact on New Zealand’s retail petrol prices.
“Refining margins will go quite high because there’s the supply chain that’s going from the Middle East to the refiners in Asia, who are overwhelmingly reliant on crude oil coming out of the Middle East, with a three-week lag, maybe a month if you want to be generous.”
“Those refiners in Asia are already considering reducing production because they don’t want to shut down a refinery. They would prefer to run it at a lower level because if you shut it down, it’s really expensive and hard to start back up again.”
“What that will mean is that there’ll be an increasingly reduced supply of refined products around Asia, and that will obviously be an important input into petrol and diesel here… $4 petrol prices are eminently feasible if you end up in some of those quite negative scenarios.”
Simplicity’s chief economist, Shamubeel Eaqub, said oil at around US$150 per barrel would translate to $4 per litre for motorists.
Meanwhile, Infometrics chief forecaster Gareth Kiernan said oil at around US$100 per barrel should put petrol at about $3.27.
“We’re pushing towards that… if you had another US$35 a barrel on top of that, US$135 on a sustained basis, you could be pushing $4. I’ve seen people talking risks around $150.”
“I think Westpac came out with $185, and others are talking $200… you look at some of those numbers, and you’re talking well north of $4 potentially.”
Kiernan noted that every US$1 rise in oil prices adds about 2.2c to petrol, while Eaqub said it could be around 1.2c if refining crack spreads stay constant.
He said Westpac estimated that a US$10 rise in oil prices adds 11c per litre to petrol.