Economy Hub: Will Trump pressure push NZ petrol prices lower?

The crude oil price surged so much this year it sparked fears about petrol heading towards $3 a litre. Then it crashed so hard we are now more likely to see $2 a litre by Christmas.

Can prices go much lower?

Today's supply announcement by OPEC is likely to be a big driver of price in the next few weeks.

It is essentially a test of US President Donald Trump's leverage over Saudi Arabia now versus that of Russian President Vladimir Putin.

Trump wants oil lower - as he tweeted this morning - but Putin wants it higher.

Hopefully OPEC will be keeping oil flows as is, not restricted. The World does not want to see, or need, higher oil prices!

— Donald J. Trump (@realDonaldTrump) December 5, 2018

The latest news is that OPEC has agreed to cut production but as yet there is no word on by how much.

Analysts say a cut needs to exceed 750,000 barrels a day to push prices up. Any less than that and they'll likely fall.

The outcome should be clearer in the next 24 hours.

But Milford Asset Management portfolio manager David Lewis said that regardless of the final outcome there is likely to be a stabilisation in the oil price.

While he still saw potential for more pump prices to fall by a few more cents before Christmas if current markets conditions hold, he does expect to see the recent volatility ease.

"Part of the reason that the price got so high was concerns about sanctions on Iran and a reduction of supply out of Iran," he said. "Then more recently we've seen Trump encouraging Saudi Arabia to continue producing at a higher level to try and keep that oil price down."

Trump wants a lower price to support the US economy and had quite a bit of leverage right now in the wake of the revelations about Saudi involvement in the murder of journalist Jamal Khashoggi, Lewis said.

President Donald Trump meets with Saudi Crown Prince Mohammed bin Salman in the White House in Washington on March 20, 2018

But a 30-40 per cent swing in the oil price as we'd seen in the past few months was unusual, he said.

"We think that should help the price at the pump to stabilise," he said.

Meanwhile, the Government has announced a formal inquiry into competition in the retail petrol market.

Lewis noted that there was evidence that New Zealand margins were high by global standards and that it was possible the Commission would put pressure on fuel companies to cut margins.

But it was important to remember that was likely to move the price just a few cents a litre.

Ultimately margins had less influence on the price than the three big factors of tax, the value of the Kiwi dollar and crude oil prices, he said.