Oil rally pumps up petrol prices

Despite yesterday's dip the price of oil has surged 16 per cent this month. Photo / Greg Bowker

Oil has been on a bull run after months in the doldrums, pushing up prices at the pump.

In New Zealand, petrol companies have steadily been increasing petrol and diesel prices for the past two weeks, and Z Energy and BP put them up again yesterday, even though the price of oil dipped to be trading at US$48.04 a barrel.

During the past two weeks, fuel prices across all companies have increased at least four times as oil staged a rally on world markets. Z and BP put the price of 91 octane up 3c to a nationwide average - before discounting - of close to $1.88 a litre.

Despite yesterday's dip the price of oil has surged 16 per cent this month.

This is from a low point of less than US$30 a barrel earlier this year but still well below highs of more than US$100 within the last two years.

Z's chief executive Mike Bennetts said his company had responded to the rising international price but he said it appeared to be a "false dawn" and he expected oil prices to settle at about US$40 a barrel.

International analysts say the oil rally is not justified by fundamentals, Reuters reports.

Crude futures have risen almost US$10 a barrel since early August on speculation that Saudi Arabia and other members of the Organisation of the Petroleum Exporting Countries (OPEC) will agree in September to a production freeze deal with non-OPEC producers led by Russia.

The rally has propelled oil into bull market territory, after technically being in a bear market in early August.

"We would argue that improved fundamentals are not a key reason for the recent price bounce," analysts at Morgan Stanley said.

"Crude oil demand is anaemic, petrol demand has decelerated globally, and China crude oil imports are likely to decelerate."

OPEC will hold an informal meeting in Algeria in September with outside producers led by Russia. Some have speculated about a production sharing deal, with Saudi Arabia helping stoke much of that perception, despite scuttling a similar plan in April.

Others, including OPEC member Nigeria, do not think there will be a deal.

Many analysts and traders also argue the current rally will not last.

"We feel that this month's approximate US$9 crude advance could easily be followed by an equivalent-sized price decline next month," said Jim Ritterbusch of Chicago-based oil markets consultancy Ritterbusch & Associates.

"The US production factor has taken on a more bearish appearance as the oil rig counts have increased appreciably," he said.