Kiwi consumers winners in oil slump

File photo / Brett Phibbs

Pump prices drop but exploration projects could face delays as crude falls to lowest in more than five years.

The sharp fall in oil prices is set to continue benefiting consumers but could delay exploration projects around New Zealand.

Crude prices are the lowest in more than five years with Brent crude at US$61 a barrel. Petrol prices fell again yesterday and are now well below $2 a litre for unleaded fuel.

Z Energy chief executive Mike Bennetts said it was hard to know where the bottom was in such a rapidly falling market.

"Normally we look for a couple of days to see where things are going but given the way it's falling we haven't got a trend yet," Bennetts said.

"Markets always overshoot so it will bottom out beyond what they should do but I think we're going to have a year with Brent at best between US$65 and US$70 and the near term we're going to see US$55."

Z cut unleaded prices to $1.959c a litre yesterday.

While energy sector companies overseas have seen billions of dollars wiped from their value over the past months, the small number of explorers, producers and related companies here have not been badly affected, for different reasons.

Z's share price has had a strong run this year and margins as a percentage of costs continued to go up as prices fell.

New Zealand Oil & Gas retreated slightly but is being supported by the prospect of a capital return and NZ Refining has also seen its margins increase and its share price is now higher than at the start of the year.

"We're relatively unexposed to the pure impact of the oil price movement," said Hamilton Hindin Greene analyst James Smalley.

"If anything - depending on how the kiwi dollar holds up - we're going to see more money in the hands of consumers ..."

Explorers are nearing the end of an intensive period of drilling and survey work around the country and Edison research head John Kidd said smaller companies in particular could be put off further work.

Big, ongoing programmes such as the offshore Maari field were unlikely to be affected, he said.

"I don't think there'll be any change to these programmes but I think there will inevitably be rethinking of work programmes if the oil price stays where it is.

"I think the expectation is that it is the environment that people will face for a while," Kidd said.

Any explorers with weak balance sheets were vulnerable in the low oil price environment.

"Especially in the junior space it makes it hard to raise new capital which you always need to explore."

BNZ senior economist Doug Steel said the falling prices would pull down headline inflation through the lower pump price and other goods and services such as taxi fares and airline fares.

The lower price will also feed into the terms of trade.

"Being a net importer of oil is a net positive on its own but it does depend what drives it - if it is softer global demand then it is likely to be an influence on what we sell.

"If this is a supply shock then it's more net beneficial to New Zealand than if it's demand."

Oil price fall

• Winners

Airlines - fuel can make up 50% of costs on some routes.
Trucking firms.
Mining businesses that are big users of diesel.
Retailers benefiting from consumers with more money in their pocket.

• Losers

Oil producers.
Companies involved in oil exploration.