Kiwis could be in for a costly summer as petrol prices rise

The price of Brent crude oil yesterday soared 10 per cent to $52 a barrel after the Opec cartel agreed to cut production for the first time since 2008. Photo / NZME

Kiwis may be in for an expensive summer at the petrol pump as a result of a deal to cut oil production overseas, the Automobile Association says.

The price of Brent crude oil yesterday soared 10 per cent to US$52 a barrel after the Opec cartel agreed to cut production for at least six month in an attempt to address a global supply glut and lift prices.

AA petrol prices spokesman Mark Stockdale said there had already been a 2 cent jump in petrol prices here in response, even though the deal would not take effect until the new year.

"We'll have to see what impact it has on the refined commodity price but [increased crude oil prices] are likely to be passed on to the refined commodity price and that being the case it can only mean one thing: rising prices."

The price of 91 octane is currently exactly the same as it was this time last year at $1.94 per litre.

However, last year prices fell sharply around Christmas but Stockdale said the opposite would likely occur this time around.

"I don't think motorists can be hopeful that they're going to see plummeting oil prices over the next couple of months - the signs don't indicate that."

The questions would be how much oil prices would rise and when this would take effect.

"I would imagine that would happen fairly soon. I mean, the oil price has already gone up and prices change quickly in response to moving commodity prices."

Richard Hale, director of energy sector consultancy Hale & Twomey, said New Zealand businesses which rely on transport fuel would be concerned by Opec's move.

"Transport fuels are a significant part of the economy so they will be concerned about the impact on their costs as a result of petroleum prices increasing."

The price of crude oil was generally reflected quite quickly in the prices paid by consumers, he said.

However, he said we may already have seen the biggest price jump in the wake of the announcement and the price movement around the Opec announcement could be "smoke and mirrors".

"The market may have already priced enough to reflect that change, but equally it could go higher," he said.

"You might argue that if you look at the fundamentals of supply and demand, the kind of surpluses that were creating the price weakness were coming around anyway."

Opec, which is made up of the world's richest oil nations, said it would reduce output by 1.2 million barrels per day (bpd) to 32.5m bpd from January for at least six months, under a deal linked to co-ordinated cuts of 600,000 bpd by key non-Opec producers including Russia.

Its president, Mohammed bin Saleh al-Sada, said the "historic" agreement thrashed out by oil ministers in Vienna had been made "for the general well-being and the health of the world economy".

The collapse in oil prices since June 2014 has battered the economies of oil-producing nations and seen investment in new projects slashed, stoking fears that the world could be headed for a new supply shortage within a few years.

Al-Sada said the agreement would "definitely help re-balancing the market", enabling the industry to "come back and reinvest" in new production capacity to ensure future security of supply.

According to the latest New Zealand Energy Quarterly, over half of New Zealand's crude oil comes from the Middle East, with Russia and Asia other significant trade sources.

While there are several producing oil fields in New Zealand, we are a net importer of oil and the country's locally-produced oil is generally exported, in large part to Australia.

Refining NZ's Marsden Point Refinery in Whangarei produces 70 per cent of New Zealand's refined oil, with the rest being imported from Singapore, Australia and South Korea.

- with the Telegraph