Petrol prices set to soar: Are you being taken for a ride?

Author
NZ Herald ,
Section
Business,
Publish Date
Tuesday, 23 April 2019, 5:24a.m.
The price for fuel in New Zealand varies throughout the country. The current average price for unleaded petrol is around $2.30, and diesel costs around $1.65 per litre. Photo / Getty Images.
The price for fuel in New Zealand varies throughout the country. The current average price for unleaded petrol is around $2.30, and diesel costs around $1.65 per litre. Photo / Getty Images.

Petrol prices in New Zealand are the highest in nearly six months and commentators in other countries are warning there could be more pain to come at the petrol pump.

Here prices rose 3 cents a litre before Easter and while the AA says the increase was unjustified then, global instability continues to push the price of crude up.

The price for fuel in New Zealand varies throughout the country. The current average price for unleaded petrol is around $2.30, and diesel costs around $1.65 per litre.

Brent crude prices have surged past $US70 ($104) per barrel since the leader of the self-styled Libyan National Army marched on Tripoli to topple the Government of National Accord (GNA). Libyan supplies are critical to setting global prices.

And its not just motorists feeling the pinch. International Air Transport Association figures show the price of jet fuel on April 12 was 4.6 per cent higher than a month earlier. While not at the level that forced airlines to raise ticket prices last year, the jet fuel index is heading that way.

The AA's Mark Stockdale said earlier this month there had been underlying increase in crude oil prices, and rises in refined commodity prices, particularly petrol after a number of global refinery shutdowns.

However, refined petrol prices rose further than diesel commodity prices but neither have risen high enough to justify a 3c/l increase, he wrote on the motorists' organisation website.

The Daily Telegraph reports Libyan National Army leader Khalifa Haftar has global oil markets in the palm of his hand and the international community is powerless to stop him.

His lightning-strike campaign across the North African coastal plain is another reminder of how vulnerable the world's most important commodity is to political turmoil.

Haftar knows the power of Libya's oil.

He helped put Gaddafi in power in 1969 and later went on to fight in the Yom Kippur war. After being captured during one of his master's misguided military adventures in Africa, he lived in the US before returning to Libya to help overthrow the Gaddafi regime.

Libya's crude matters a lot because of its high quality. Most of the near 1.1 million barrels a day of production is premium light-sweet crude, which is preferred by Europe's ageing refineries.

Europe buys more than 70 per cent of Libya's crude on its doorstep.

Much of this oil is pumped from the giant Sharara acreage. Discovered in the Murzuk desert in the mid-80s, the cluster of a dozen fields is located 640km southwest of Tripoli. The strategically important area's output was repeatedly interrupted by fighting among militias until Haftar's forces seized the area this year.

Including his Sharara prize, he now provides security for major oil facilities around the strategic Sirte basin, such as the export terminals at Es Sider and Ras Lanuf. Combined, these assets account for two thirds of the country's output.

So far, Mustafa Sanalla, who acts as the country's oil minister, has been able to work with Haftar.

If European refiners can't get reliable supplies of Libyan oil, the nearest alternatives of a similar quality are Algeria or Nigeria. Abundant US shale oil is another option but it has much further to travel before it reaches Europe's thirsty refineries.

Meanwhile, the basic economic fundamentals of supply and demand governing the price of crude are flashing red, the Telegraph reports. Opec's policy of restricting supplies along with its main ally Russia is squeezing the market, just as growth in Asia's demand-driving economies picks up.

Data released last week by the US Energy Information Administration showed a near 1.4 million-barrel draw in US commercial crude inventories in the week ended April 12 to 455.2 million barrels.

As stockpiles begin to draw down, China's economy is beginning to recover.

The world's second-largest consumer of crude said first-quarter GDP growth reached 6.4 per cent. These key drivers for higher oil prices, coupled with other political fires smouldering in other major crude-producing areas, have amplified Libya's impact and the importance of Haftar's next move to markets.

"The setback in Libya comes just ahead of restrictions on US dollar transactions with Venezuela's PDVSA on April 28, Trump's next Iran sanctions waiver deadline in May, and the genuine prospect for eventual US secondary sanctions on Venezuelan exports," warns Paul Sheldon, chief geopolitical adviser at S&P Global Platts Analytics.

With so much uncertainty, it is no wonder banks and research houses are now scrambling to revise up their forecasts for oil prices.

Some market watchers have even raised the prospect of prices returning to the lofty firmament of US$100 per barrel.

Royal Bank of Canada warned this month when Haftar launched his current campaign:

"Haftar may find himself overextended and his rivals may seize the opportunity to try wresting control of the energy facilities away from him."

The Telegraph says that if Libya does descend into another protracted period of civil war it could be the tipping point to send oil prices spiralling out of control.

Mike Hosking Breakfast

Mike Hosking Breakfast

6a.m. - 9a.m.