Economist Gareth Kiernan warns fuel prices likely to stay above $3 a litre into 2027

Motorists have seen a respite in the cost of fuel in the past week despite volatility continuing in the Middle East.

The average cost of 91-grade petrol has fallen from around $3.48 a litre this time last week to $3.33, according to fuel tracking app Gaspy.

Meanwhile, diesel has dropped more than 30 cents on average from $3.89 to $3.56 a litre.

But households could be feeling the pinch of higher prices for a while longer, says one economist.

“From a household point of view, we would expect [fuel prices] to remain higher for several weeks, possibly months,” said Gareth Kiernan, chief forecaster at Infometrics.

“Even looking out into 2027, we think a reasonable working assumption is you’ve got petrol prices still around $3 a litre …

“… It’s really a case of households being hit particularly hard and what was looking like finally a bit of a recovery, we’ve very much put that on hold and pushed it down the road by another 12 months or so.”

Kiernan said international oil prices had consistently been below US$100 ($169) a barrel for a few days now.

“So that’s helped a little bit.

“Where the prices are at the moment, I wouldn’t say there’s any particular upward pressure on them, which is nice.

“[But] I wouldn’t be holding my breath for much further relief on the downside,” he said.

“The reality is there’s almost nothing getting through the Strait of Hormuz.

“Even if the conflict was magically resolved tomorrow, you’ve still got the air bubble in the supply chain to work through. You’ve got damaged production facilities in parts of the Middle East, which means you’re not going to get back to full capacity quickly.”

Kiernan said the cost of refined fuel in Singapore, particularly for diesel, had come back about 20% over the last couple of weeks from where it was in early April.

“What we’d seen previously was while international oil prices had surged, it had been a more pronounced rise than that in terms of the refined fuel output for diesel and that’s why the diesel prices had lifted substantially more than the petrol prices.

“We’ve seen a little bit of that unwind, they’re still massively elevated. But that has provided a bit more relief on the diesel side than we’ve seen in terms of petrol prices.”

A spokesperson for Z Energy, which also owns the self-service U-Go, said it was reasonable to expect continued price volatility while the conflict remains unresolved.

“Z sets retail prices based on replacement cost. This means prices are based on what it will cost to buy our next shipment of refined fuel from overseas, not the fuel that is already sitting in tanks today.

“While we can’t speculate on future fuel price movements, Z remains committed to supplying fuel to our New Zealand customers.”

According to Stats NZ, Kiwi motorists spent 17%, or $81 million, more on fuel in March than in February.

Prices for petrol rose 18.6% month-on-month, while diesel prices increased 42.6%.