KEY POINTS:
A country such as ours can do precious little about the price of oil at present, and the Government has done it. Commerce Minister Lianne Dalziel has set up an inquiry to examine the pricing behaviour of domestic suppliers, the level of competition in the local market and the information available to consumers. This is a well-trodden path of inquiry unlikely to tell us anything new, let alone offer a practical response to the oil shock.
It can do no harm to inspect suppliers' operations from time to time, especially in the midst of international stress, and all Governments feel a need to be seen to do something at a time like this. Ms Dalziel wants to hear domestic suppliers explain why they take so long to pass international price decreases through New Zealand pumps, yet increases are felt almost immediately. But their explanation will make no more sense to the consumer than it ever has, and price decreases are rather academic in the present global predicament.
Intense trading in oil futures contracts has been driving prices higher by the week with no end in sight. Fund managers look at the fundamentals of rising demand and static supply and conclude the price has to rise. They hear Western Governments urging oil-producing countries to increase the supply and it is not happening. Investment analysts infer from that non-response that not much more supply is readily available. If it were there, they say, it would be being pumped to take advantage of prices that have doubled in a year.
It may be possible to blame this speculation on loose monetary policies in the US that helped to produce the bubble in property prices that collapsed last year, leaving the excess liquidity to flow into commodities, especially oil. But blame does not help to burst the latest bubble, if indeed that is all it is. The latest oil shock may appear to be based on nothing as substantial as the decisions of the Opec cartel in the 1970s but the current supply constraints are real. A period of low prices has limited investment in new refineries, particularly in the US, the world's largest consumer.
Meanwhile, demand has risen rapidly in developing economies, notably China, where subsidies are cushioning new consumers from the true cost of motor fuels. Investment funds have read the signs and when the equity bubble burst, commodity prices beckoned. Demand for them was rising faster than the capacity to meet it.
It is pointless to blame the "speculators" for spotting the inevitability of higher prices. Environmentalists have been making the same prediction for much longer. Speculation has simply made consumers confront the future rather more rapidly than might have been the case had US monetary policy and bank lending been more prudent.
The only concrete response the Government here can conceive is possibly to copy an Australian price-notification experiment. Oil companies are being obliged to post their next day's prices for Perth on a website. The scheme is to be extended to the whole country during next month. Ms Dalziel wants her inquiry to consider whether something similar would work here.
It is hard to see that it would achieve very much. It would lessen competitive behaviour since companies would be able to monitor rivals' intentions more easily. It could cause panic buying the day before a notified increase and make the market less orderly than it has been.
The sensible response to the rising price is to reduce oil use as much as possible and seek alternatives. Demand is declining in countries such as ours where consumers are not shielded from the price. These countries are allowing the price to create incentives for alternatives to be developed. The future is theirs.
