COMMENT:

Oil prices are on the rise again - they hit a six-month high last week.

Markets are volatile so it's a bit of a fool's game trying to predict what that means for petrol prices at the pump next week.

All right, whatever: Odds are you'll be paying more.

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About this time last year oil prices were spiking towards US$100 barrel as the global economy expanded, the Kiwi dollar was falling and there was a fuel tax impending.

It all added up to a perfect storm for local consumers. I predicted that petrol prices would push up towards $3 a litre.

It looked like a spectacularly good prediction for several months, until suddenly it spectacularly wasn't.

Oil markets slammed into reverse in mid-October, confounding analysts. From more than US$80 a barrel the price dropped by a third and we ended the year paying closer to $2 a litre.

Last week, prices were back above US$74.

But I'm wary this time.

Not to mention I've filed this column early for the short, holiday-filled week.

That's a whole extra day for US President Donald Trump to change his mind on something and shift the direction of the entire market.

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He did that last week.

News out of the White House that the US will now play hard-ball on Iranian oil sanctions caught traders and analysts by surprise and drove crude oil prices up sharply.

It was the reversal of a much softer stance the White House took on Iran last year, when rising oil prices threatened to dampen US economic growth.

A cynic might think the White House was trying to push oil prices up to levels that will make its shale-oil producers profitable again.

US energy certainly stocks rose last week after the Iran policy news.

In fact, Wall Street's S&P 500 and Nasdaq Indexes hit fresh records last week for the first time in months.

Perhaps the Trump administration has loftier foreign policy goals driving its new Iran policy.

We can at least be sure that reducing the world's reliance on fossil fuels is not one of them.

To be fair, Trump would hardly be the first US President to make foreign policy calls that coincide with the interests of America's oil producers.

Oil markets are fascinating precisely because they come with a complicating layer of international politics.

And the product itself - despite all the damage it causes - remains fundamental to the global economy.

Aviation, shipping, driving, manufacturing - the price of oil flows through almost everything we consume.

In theory it should be a great indicator of economic growth and recession – if it wasn't for the way the complexities of its supply overshadowed demand.

For example, Trump's call on Iran sanctions is just one of several supply side factors driving prices right now.

Last week's intensification of civil war in Libya threatened the output of one of the world's largest producers.

The details of the Libyan conflict are pretty depressing and all too familiar.

The short version is that there is a fragile UN-backed government which is under threat from a military strongman who has gained the upper hand – threatening the oil supply.

The Russians, Egyptians and Saudis have been backing the strongman and now the US has decided they like him too.

The US and Russia both vetoed a UK-backed UN resolution calling for a truce and the beginning of peace talks.

The US offered no reason for its position on the resolution.

Sadly, the politics of oil and war are one of the few areas where conspiracy theorists don't have to over extend themselves.

Against the backdrop of tightening supply we may also see renewed demand pressure this year - China's economic slowdown has been averted by government stimulus and US recession risk has receded along with expectations of Federal Reserve rate hikes.

What happens to oil prices is complex enough.

When you take the analysis all the way to the petrol pump you have to throw in exchange rates, local retail-industry dynamics and taxes.

It all makes long-term predictions highly fraught.

But as things stand right now we look likely to be paying more at the pump this year – not less.

The prospect of lower interest rates here is dampening the Kiwi dollar, which will add to the upward pressure on the local petrol price.

Whether that becomes one of the defining economic stories of the year – as it was last year – remains to be seen.

It could switch again on an unexpected presidential whim, a military defeat, a royal Saudi decree or another stock-market meltdown.

US oil production is rising fast and expected to peak next year.

Because much US production comes from relatively more costly extraction of shale oil, global prices have to reach a certain level before it is profitable.

It takes a while for US production to gear up and a while to turn it off.

US over-production played a big part in the oil price crash back in 2014.

So from a US economic point of view it helps if you have some influence over other key suppliers.

Hence America's long and strange relationship with Saudi Arabia and the Middle-East in general.

Trump's volatility simply adds another layer of strangeness to it all.