Petrol prices are set to fall further. Photo / File
Petrol prices are set to fall further. Photo / File
Crude oil prices have plunged again, adding to global economic concerns but offering business and consumers some short-term relief - with pump prices set to fall further.
Benchmark West Texas Crude and Brent Crude prices plunged overnight as further coronavirus lockdowns hit the demand outlook.
Meanwhile, supply concerns grew asSaudi Arabia reiterated its commitment to boost production to record levels as it faces off in a price war with Russia.
West Texas and Brent Crude are now both down about 56 per cent since recent peaks in early January.
This morning they were trading at US$26 ($43.61) and US$30 respectively.
"Prior to this the largest six-month global surplus this century was 360 million barrels. What is coming will be twice that or more."
In New Zealand, pump prices have fallen in recent days. Outside of the Auckland regional fuel-tax area, 91 octane is selling for under $2 a litre for the first time in three years.
The fall in the New Zealand dollar to around US59c will undercut some of the potential gain for motorists.
But further local falls are now inevitable.
Z Energy chief executive Mike Bennetts has said previously that every US$1 in crude oil price typically translates to about one cent a litre at the pump in New Zealand.
The crunch point for global supply is coming in April, when previously agreed production limits expire.
A guard stands in front of Aramco's oil processing facility in Saudi Arabia. Photo / AP
Saudi Arabia says it will pump more than 12 million barrels a day, compared to around 9 million in February.
That has industry analysts predicting the barrel price will fall below US$20.
"Oil could easily be in the teens at the bottom. Could even be low teens at the lowest," Abhi Rajendran, director of research at Energy Intelligence, told CNBC.
"Demand dislocation is unprecedented," he said. "Everyone is shutting down, especially in the US."
The slump is expected to put huge additional pressure on the US economy, which had seen its shale-oil production climbing to record levels in recent months.
It could cost thousands of US energy industry jobs.
On balance, as a net importer, New Zealand's economy should see more upside from the price relief.
However, it may add to a deflationary shock facing the economy, and greater global geopolitical insecurity will not reassure those watching closely in Treasury and at the Reserve Bank.
Background: The oil price war started less than two weeks ago at a meeting of Opec+, when Russia refused to cut oil production in defiance of its partners.
Opec+ was a grouping of the traditional 14 Opec nations, led by Saudi Arabia, and 10 non-Opec countries, including Russia.
It was a loose alliance formed in 2017 in response to the supply shocks through 2014 and 2016.
The Saudis responded by slashing prices and threatening to boost production - effectively blowing the industry group out of the water.
Analysts say Russia is better placed to weather the price shock than the Saudis and other Arab producers, like Iraq and the UAE.
What is actually going on in the secretive Saudi kingdom is anyone's guess.
Saudi Arabia's sudden hardline approach has surprised political analysts but came just days after a reported coup attempt and arrest of senior officials - including members of the royal family.
Although there has been no official explanation, Bloomberg News (quoting unnamed sources) has reported that Prince Ahmed bin Abdulaziz (the last surviving full brother of King Salman bin Abdulaziz) and Prince Mohammed bin Nayef (a former heir apparent to the Saudi throne with strong ties to the US security establishment) had been plotting a coup.
There is speculation in the industry that there is an ulterior motive for either Russia, Saudi Arabia (or both) to punish the US economy.
