Oil squeeze will last years, says BP

Major oil supplier BP is hinting at several more years of high global fuel prices before new refineries will be able to meet demand.

Although crude oil prices have fallen sharply from record levels reached during last week's hurricane disaster in the southern United States, BP New Zealand managing director Peter Griffiths warned yesterday that refining capacity would remain tight for years to come.

The Automobile Association is upset petrol rose a further 3c a litre on Wednesday - to a record $1.559 for 91-octane at most city pumps and more for higher grades - even as world oil prices dropped US$6.50 ($9.20) a barrel below last week's peak of US$70.85.

Three of the eight oil refineries shut down as Hurricane Katrina battered the Gulf of Mexico and New Orleans have resumed operations, as has almost half the region's offshore production.

But BP spokeswoman Diana Stretch said the price for refined petrol from Singapore remained more than US$5 dearer at US$84.88 a barrel than at the middle of last week, when local retail prices rose by 5c a litre.

AA spokesman Greg Hunting said motorists would be keen to see cheaper crude oil reflected in pump prices without delay, especially given the speed at which the suppliers raised them when Katrina hit.

New Zealand oil firms claim to follow international practice by setting retail prices to the immediate replacement cost of fuel, but Mr Hunting said Australian suppliers took until this Wednesday to move up, and then by only an average of 4Ac (4.4c) a litre to A$1.28 ($1.40).

This compares with 8c a litre in New Zealand, where there is less locally based oil production.

Stewart Island motorists are paying up to $1.80 a litre, even though prices in Invercargill are the same as in Auckland, but one island resident told the Herald yesterday: "That's the price of living in paradise."

Gull Petroleum's New Zealand head, Geoff Gillott, said he held off from raising his prices until late yesterday morning but the latest 3c hike would not cover his full cost of importing refined petrol.

Installers of liquefied petroleum gas equipment in cars and vans are being rushed off their feet to meet fresh demand for the cheaper alternative fuel.

Veteran installer Ross McLennan, of the Auto Gas Centre in East Tamaki, was reluctant to disclose vehicle numbers but said he had a waiting list of almost three months.

Some motorists, including owners of fuel-guzzling 4WD vehicles, were desperate to convert to LPG but he was having to turn away some uncommon models which might take two or three days of his time to work out how to install new equipment safely.

Mr McLennan said he feared a continuation of high oil prices would attract "the wrong element" back into the industry, out for a fast profit in return for inferior workmanship.

"We are working flat out but are trying to keep a head on it because we supply equipment and are turning away people who are not qualified and are trying to get into the industry," he said.

LPG Association executive director Peter Gilbert said the fuel ranged in price from 75c to 80c a litre.

Although about 20 per cent more LPG than petrol was needed to travel the same distance lifting the comparative cost to between 90c to 96c) it was still markedly cheaper. It also gave a slightly higher performance than petrol, being 99 octane.

Mr McLennan said although taxi operators converting to LPG could probably recover the $3000 to $3500 conversion cost in five to six months, other motorists should make their own cost-benefit calculations before leaping in.