By Mark Reynolds
Between the lines
A sharp rise in petrol and diesel prices in the past couple of weeks appears to have a way to run yet.
Oil industry analysts suggest that unless there is relief on crude oil price pressures in the short term we can expect further retail price rises of 5-6 cents a litre within the next two months.
That is worrying news, because a 1 cent a litre rise in the price of petrol and diesel is estimated to place a $50 million annual cost burden on the overall economy.
The bleak outlook is due to the state of international crude oil markets.
Prices for crude have almost doubled since March, when the Organisation of Petroleum Exporting Countries (Opec) refound some of its forgotten cooperative muscle and started to put the squeeze on international oil supplies. The cartel agreed to a year of extra curbs on production, effectively taking 1.7 million barrels a day out of the oil-supply chain.
The arrangement was aimed at reversing a world oil glut that had sent crude prices spiralling to decade-ago lows and reduced the collective income of Opec members by $US50 billion in 1998.
What has surprised industry watchers is the degree to which Opec's members have maintained their commitment to the self-imposed production quotas since March.
The United States-based Energy Information Administration estimates Opec members have maintained 80 per cent compliance since March and will continue to do so over the remainder of the year. That would keep prices for benchmark crude oil blends around current levels of close to $US20 a barrel.
What is more worrying is that latest industry estimates are that Opec compliance has been more than 90 per cent since the beginning of June. If that remains the case throughout the next six months then oil prices could be expected to surge a further 10-15 per cent.
This outlook would worsen if Asian economies continued to grow at current rates, which are stronger than previously forecast and are soaking up the constrained energy supplies.
The small consolation for New Zealand is that motorists and transport companies here are suffering less from the latest round of crude oil increases than their counterparts overseas. A 7 per cent increase in local fuel prices in the past couple of weeks compared with average international gasoline price increases of 22 per cent in June, according to EIA data.
The difference is almost certainly due to increased competition in the petrol station industry here, with companies like Challenge! entering the market last year.
But with margins in the local industry now at barely breakeven levels, there is little room left for the fuel companies here to manoeuvre. Therefore businesses would be well advised to budget for petrol and diesel prices to at least remain at current prices through to the end of the year.
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