New Zealand petrol price have dropped by 44c a litre of 91 octane since the start of the year. Photo / Hawke's Bay Today
New Zealand petrol price have dropped by 44c a litre of 91 octane since the start of the year. Photo / Hawke's Bay Today
Oil prices have gone negative for the first time in history but that won't mean cheaper petrol at New Zealand pumps.
West Texas Intermediate (WTI), the US benchmark, closed on Monday at minus US$37.63 a barrel, compared to US$18.27 on Friday, reflecting too much production and a shortage ofcapacity US to store it.
North Sea Brent crude - seen as a truer international benchmark - lost 8.9 per cent to $25.57 a barrel on Monday- but back where it was just a month ago.
AA fuel expert Mark Stockdale said local prices take their lead from Brent rather than WTI, so further falls in the New Zealand pump price were unlikely.
Stockdale said 91 octane petrol has lost about 44 cents a litre in price since the start of the year. He expected prices to stay low while demand globally had "fallen off a cliff".
At it stands, there are big variations in New Zealand prices.
In some parts of the country, 91 octane trades a $1.80/lire while in others, it's closer to $2/litre. For diesel, prices can vary from just under $1 to $1.30/litre.
The impact of the Covid-19 pandemic has delivered a colossal hit to the oil market which is also having dealing with failure of the oil cartel Opec to adjust production to offset the steep drop in demand.
OIL
Stockdale said dysfunction in the market was such that refineries were buying oil for a higher price than they are selling their refined product at.
That reflects the fact refineries can't shut down easily, even when demand slumps.
He estimates imported 91 octane petrol costs just 25c a litre - or about one eighth of its pump price - compared with 70c litre at the start of the year.
"What that is showing is just how little the pump price actually has to do with the actual product cost," he said.
"This is lowest oil has been in 10 years and yet despite that we have pump prices at nearly $2 a litre.
"That's because the biggest part of the pump cost is not the product costs - it's actually tax."
ASB chief economist Nick Tuffley said the US - now the worlds' biggest oil producer - is facing a physical glut.
Unlike its North Sea and Middle East competitors, the inward-looking US oil market is not well equipped to serve the seaborne oil export markets.
"There is simply much oil flowing within the United States and demand, like in most countries, will have sunk quite rapidly in the near term.
"As economic activity dries up, oil has continued to flow," Tuffley said.
Oil prices turned negative in the US this week for the first time in history. Photo / Supplied
"That's putting huge pressure on storage."
Tuffley said Monday's negative oil price looked like an aberration as longer dated oil futures were showing positive signs.
"[For] What is happening for New Zealand, from a global point of view, it's best to look at Brent, or perhaps some of the other benchmarks because the US is still a fairly closed oil market," Tuffley said.
"It's not well set up as an oil exporter, so you tend to get these anomalies.
"What you have is an glut of oil but no relief valve in terms of being able to release vast quantities of it to alleviate temporary issues around supply and demand."
For New Zealand, lower oil prices will help the economy because the country is a net oil importer it will help keen transport costs down, he said.
However, there could be some negative fallout as some key oil producing countries are also key buyers of New Zealand dairy product.
Low oil prices in the past have had a direct impact on dairy demand and prices, he said.
