By ELLEN READ and REUTERS
Soaring oil prices are set to hit New Zealanders in the pocket.
Petrol companies have not lifted prices yet but Shell spokesman Simon King says the increased oil prices "are likely to be reflected at the pump".
"Generally when [oil] prices are this high it indicates an upward trend in petrol prices," King said.
Global oil prices, which have been on the rise all year, have pushed up well into the U$40 range in recent weeks as worries simmer over supply disruptions from the Middle East and concerns grow that financial problems at Russian oil company Yukos could hinder Russian output.
They hit their highest levels in at least 21 years this week - US light crude hit U$43.05 a barrel - after Yukos was ordered to stop sales.
The news heightened fears over the lack of spare capacity in the international oil system, as the Opec cartel pumps at more than 95 per cent of its capacity, the highest for a quarter of a century, to meet demand.
Westpac senior economist Nick Tuffley said the New Zealand economy would be hit directly and indirectly (through trading partners).
"The consequences are a spike in inflation from higher transportation costs, and less discretionary money in the hands of consumers and businesses," he said.
"It will have a slight dampening effect on economic activity through that [less money in the hands of consumers] and also on businesses. It tends to put pressure on their margins as well."
Last week's second-quarter inflation data showed the effects of the year's rising oil prices - with petrol prices up almost 8 per cent.
Tuffley said the Reserve Bank would not normally respond to that sort of direct impact on inflation but would try to stop so-called second-round effects.
"That's where people go, 'Prices have gone up, I've basically been robbed so I want some money. I want higher wages', or in the case of businesses, 'I want to be able to recoup that' by just jamming all the prices up," he said.
New Zealand relies mainly on Dubai crude, which is usually priced around US$5 below US light crude.
Tuffley said estimating a "fair price" for oil was complicated but prices in the mid-to-high US$20 range would be more benign for global growth.
David Thurtell, a commodity strategist at Commonwealth Bank of Australia, said: "Coming at a time of fundamental tightness, the Yukos news is worrying."
Yukos pumps a fifth of the crude supply in Russia, the world's second-biggest oil exporter, after Saudi Arabia.
The company has said it faces imminent bankruptcy as courtsseek to enforce a US$3.4 billion tax debt.
Oil price increases about to hit home
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