Petrol price heading for record high

HAMISH RUTHERFORD, PAUL EASTON AND ROMY UDANGA
Last updated 11:30 09/03/2011
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Stu McKinlay
ROSS GIBLIN/Dominion Post
SAVING MONEY: Wellington business analyst Stu McKinlay has no regrets after switching from four wheels to two to save cash.

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Petrol prices could rise to record levels within days, according to the head of New Zealand's largest fuel company.

All major fuel companies raised the price of 91 octane petrol by five cents to 215.9c a litre yesterday.

It was the third price increase faced by motorists in eight days, with regular unleaded now just 3c a litre below its record high of 218.9c, hit briefly in July 2008.

Mike Bennetts, chief executive of Greenstone, which owns Shell service stations and fuel distribution, said the company had delayed passing on cost increases, but the spike in world prices now looked like continuing and it had no option but to put up prices.

"Our ability to absorb price increases is no longer there, so we've got to pass these prices on."

Even after yesterday's increase, fuel companies were operating at margins about 5c a litre below normal levels, Mr Bennetts said, and unless the price of oil dropped or the New Zealand dollar strengthened soon, further increases would follow.

"By virtue of being a price-taker from international markets, we can't make this go away."

Petrol prices have risen sharply in the past month as conflict in Libya stretches the international supply of crude oil. At the same time, the New Zealand dollar has dropped sharply since the Christchurch earthquake, making imports more expensive.

Retailers will be first to take a hit as consumers tighten their budgets to cope with the price spikes, according to Massey University School of Economics and Finance associate head Dr David Tripe.

Dr Tripe said if the current price was sustained, the shift in retail spending could hurt the non-oil retail sector.

"People would be spending more on petrol and non-oil retail spending could be impacted. Petrol is important in household budgets and a significant item in some households."

He predicts a shift to public transport, particularly in urban communities, as happened after petrol prices spiked in 2008.

Public transport does not react quickly to price and fuel costs changes, he said, and in many instances, as in  Wellington, a significant portion of the energy used is electricity.

"It [recent petrol price hike] would not immediately push the cost of public transport fares by the same amount as the increase in fuel prices."

Dr Tripe said the price spike might be relatively short-term however.

“We need to see what happens to the political situation in the Middle East and North Africa."

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Earlier this week Phil Verleger, a leading United States oil economist, warned that if all of Libya's supplies were lost because of the conflict there, Brent crude – the lead indicator for oil prices – could rise from US$116 a barrel to US$140-to-US$150 by April. This could add another 40c to 50c to the price per litre in New Zealand.

Mark Stockdale, Automobile Association spokesman, said fuel companies "had been playing catchup" after delaying price increases, but they now appeared to have made up most of the cost increase they faced.

"Motorists will probably be looking for some restraint now that the oil companies have passed on the bulk of the oil price rises."

Bank of New Zealand economist Doug Steel said the increase in petrol prices, if it stayed at the current level, would directly add 0.5 per cent to inflation in the first quarter of 2011, taking annual inflation to about 4.6 per cent.

Petrol price rises were "worse than a tax", he said, because the extra cost was not recycled by the Government, but went directly overseas.

WHY IS THE PRICE OF PETROL RISING?

Libya is not a major supplier of oil, but it does produce some of the best crude oil for the manufacture of low-sulphur diesel.

More than twice as much Saudi Arabian crude would be required to produce the same amount of diesel as that of Libya, magnifying the impact of the drop in production.

Oil prices are also being pushed up by fear of spreading conflict in the Middle East, with websites promoting a "day of rage" in Saudi Arabia on March 11.

In New Zealand, fears of a slowing economy and expectations the Reserve Bank will cut interest rates to boost growth have caused the New Zealand dollar to drop, so means imports are more expensive in New Zealand dollars.

Though the price of crude oil is still US$30 a barrel below the record of 2008, the exchange rate is lower and tax rates higher, with the Government adding 13 cents a litre in higher ACC levies, carbon costs, GST and excise tax since 2008.

SCOOTER THE WAY TO GO

Stu McKinlay has no regrets after switching from four wheels to two to save cash.

The Wellington business analyst downsized from a sedan to a scooter when petrol prices skyrocketed 2½ years ago.

"We had two cars. I was driving to work by myself ... and I just thought what a waste of money. I worked out the sums and saw it would only take about six months before it paid for itself."

He paid $2500 for a "peppy" 125cc Suzuki scooter for his commute from Miramar to the city. It costs him about $13 to fill up, compared to about $70 to fill the family car.

"I laugh at how much I used to pay," he said. "It's good for my employer too. They're not paying for me to take taxis around, I just jump on the scooter."

A full scooter tank lasted about 10 days.

"On the rare occasions I fill up the family car it shocks me how much I pay. I look at people with bigger cars, and think they must be paying more than $100 to fill up."

- © Fairfax NZ News

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