Petrol prices follow oil down

Photo / APN

Oil prices have tumbled as world growth prospects dim, prompting a 3c-a-litre cut at the pump for New Zealand motorists and industry players to warn of volatility for the rest of the year.

Oil fell US$3 a barrel yesterday after the United States' top-tier credit rating was cut at the weekend. Brent futures - on which New Zealand prices are based - slumped as low as US$106.20. US oil fell US$2 to as low as US$83.68 a barrel.

While oil has slumped, gold yesterday touched an all-time high of US$1704.30 an ounce and could rise further if pledges by the Group of Seven nations to support battered financial markets fail to bear fruit.

Brent oil peaked for the year at just under US$130 in April but Z Energy chief executive Mike Bennetts said prices were already softening ahead of the US credit downgrade, which threatens to push up borrowing costs and cut growth and demand for oil in the world's biggest economy.

A decision by the International Energy Agency to order the release of 60 million more barrels into the market was already being felt before reaction to debt problems in Europe and the US intensified last week. New Zealand had been largely insulated from high prices by its strong dollar - as a commodity-linked currency it moved roughly in sync with oil prices.

"If you're asking what prices will be later this year, the big picture is the kiwi dollar is going to be very volatile and this market is very difficult to call," said Bennetts.

Richard Hale, from oil analysts Hale and Twomey, said he expected prices to fall during the next two months.

The demand for heating oil in the Northern Hemisphere winter could put a floor under prices but the tone was negative.

"Markets have become very unnerved by various debt crises and it's adjusted back down," he said.

"Once you start to see that demand shift, it's not unreasonable that it should keep trending down. The market has tipped the balance and we're in a recessionary environment."