War talk sends oil prices soaring

By CHRIS DANIELS and AGENCIES

Heightened fears of war in the Middle East sent world oil prices soaring yesterday, and New Zealand supplies are already being affected by the military build-up.

The UN speech by US Secretary of State Colin Powell, seeking to convince the world of the need for a strike against Iraq, caused a further jump of 1 per cent in a market already close to two-year highs.

The increase brings the spectre of rises on top of the 2c to 3c a litre announced by most oil companies this week.

Shell New Zealand spokesman Simon King said around half of the oil the company processed at the Marsden Pt refinery came from the Middle East. The rest came from New Zealand, northwest Australia, Asia and West Africa.

In any case, local prices reflected the international price, regardless of whether the oil came from Nigeria, Indonesia or the Middle East.

After Powell's speech US light crude jumped 35USc to US$33.93 ($62) a barrel, only US$1.30 below the 26-month high struck last week. London Brent blend rose 27USc to US$31.36 a barrel.

Heating-oil futures hit US$1 a gallon for the first time since December 2000, and gasoline futures reached their highest level for 20 months.

World oil prices have now risen 37 per cent since November, although the strengthening value of the New Zealand dollar has partly cushioned consumers from the impact.

King said the international oil market, like stock markets, was affected by nerves, rumours and signals.

Fears of war - especially in the Gulf region, which supplies 40 per cent of world crude exports - added to the instability.

Oil prices have also been hit by a 65-day strike in Venezuela, which now seems to have ended, plus increased demand caused by a cold Northern Hemisphere winter.

The global jitters are likely to take some time to have any significant economic impact on New Zealand.

BNZ chief economist Tony Alexander said recent volatility in petrol prices - which were reduced only a week or two ago - meant that consumers and businesses might expect prices to drop just as quickly as they had been rising.

"You're probably looking at more towards six months or so of high prices to convince business people that they are going to remain high and costs remain high for a long time and therefore adjust something in response to that."