Overseas oil prices outstrip rising NZ dollar

By CHRIS DANIELS energy writer


How can the New Zealand dollar be soaring so high, yet local petrol prices rise? The answer is simple: the cost of fuel on world markets has been rising even quicker.

And although half to two-thirds of our petrol and almost all of our diesel is refined locally, it is the world oil market, for both crude and refined petrol, that sets the price.

New Zealanders produce some of the cheapest and best beef, fish and milk in the world, yet the price we pay at the supermarket is largely dictated by the global market. After all, Waikato farmers sell their milk to wherever they can get the best price.

BP, for instance, imports half of its refined petrol from overseas, and the rest is refined at Marsden Pt. Of the oil companies, only Gull imports all of its fuel fully refined.

Within the oil companies, prices are paid from one division to another, so Mobil New Zealand, for instance, would pay its own refining division a market price for petrol. This price would be set according to the Singapore benchmark, which is largely a reflection of the cost of crude oil.

This price of crude is set by supply and demand - such as the present high demand for heating fuel in the United States, but is also manipulated by the Opec cartel which has recently been cutting production, with the aim of pushing up prices.

Producers get paid in US dollars, so when the value of the US dollar drops, revenue falls. The corresponding increase in the cost of crude oil has recently offset most of any advantage gained from the rising kiwi.

Some consumers have questioned why oil companies quote the price of petrol in Singapore when justifying price rises. It is the regional hub for oil trading in the Asia-Pacific region and, with its big refining industry, is home to a big oil market, where prices are set and fuel is traded.

The Singapore benchmark price is what the oil companies use to charge their retail divisions for refined petrol - whether it comes from Marsden Pt or a refinery in Singapore or Australia.

On November 5, the Singapore benchmark price for unleaded 91 was US$33.57 a barrel. Only two days ago, this had increased to US$48.20, a jump of more than 40 per cent. During this same period, the New Zealand dollar rose in value by 11 per cent against the US dollar.

So the increasing strength of the New Zealand dollar relative to the US dollar does not always mean cheaper pump prices for motorists here.

For prices to drop dramatically at your neighbourhood gas station it would require world prices - first of crude, then of refined fuel, to at least stay steady or even drop.

Then the soaring kiwi could start giving us something to smile about.