Fuel prices 'will go higher'

As the price of diesel rocketed 5c a litre yesterday to hit a record high and the cost of petrol jumped about 3.5 per cent, a top economist warned things would only get worse.

Petrol is sitting just 2c a litre below the highest prices seen in this country - just after Hurricane Katrina struck Florida in August. Unleaded fuel now costs $1.53.9 a litre.

Fuel prices have been volatile recently. On March 7 there was a 3c-a-litre increase, followed by a 2c-a-litre decrease on March 14.

Oil companies have traditionally blamed any price rises on several factors. Yesterday they singled out the plummeting New Zealand dollar and the increased costs of refining

Jackie Maitland of Shell said diesel had risen in price partly because of the "huge increase in demand for low-sulphur product throughout the Asia-Pacific region".

New Zealand switched to the more environmentally friendly low-sulphur diesel on January 1. Since then, the cost of diesel has risen 21c, or 23 per cent.

BNZ economist Tony Alexander said farmers would be the first to feel the effects of such sharp increases. The falling dollar would continue to hurt anyone who relied on imported commodities.

Two weeks ago the dollar was worth 67USc, but it was now down to 62USc.

Despite the price rises, demand was unlikely to slow, Mr Alexander said. People would make cut-backs in their spending elsewhere.

"It all adds to the negative pressures on the economy - it's constraining business profitability and they'll [businesses] be pulling back on capital expenditure."

"It seems likely that we'll see prices go even higher, given the fragile situation in many oil-producing countries."

Cambridge man Matthew Seavill said the cost of filling up at the petrol station was "getting out of hand". His car's running costs had increased about $1500 a year over the past 18 months.

More stations were asking their customers to pre-pay before unlocking the pumps, because so many people were now stealing fuel, he said.

AA motoring affairs manager Mike Noon said demand for fuel worldwide was high, while supply remained relatively tight.

"There's a very high demand for low-sulphur diesel and not a lot of refineries are making it."

Savings from running a diesel vehicle rather than a petrol one were now marginal, he said.