Fuel price down 'but not for long'

Service station attendant Venkatesh Chettiar updates the prices at his Jervois Rd Herne Bay workplace yesterday. Picture / Kenny Rodger

Fuel prices dropped yesterday for the seventh time in as many weeks - but an economist warned reductions would not last.

ANZ Bank chief economist Cameron Bagrie said the days of $1-a-litre petrol were gone.

It would take the discovery of new oil fields, slower global demand, and world peace before there was any meaningful long-term fall in fuel prices.

But that won't worry motorists in the short term as the four major petrol suppliers yesterday cut prices by 3c a lire for petrol and 4c a litre for diesel.

The drops mean 91-octane is now 143.9c, 95-octane is 148.9c and diesel is 103.9c, the same levels as in January.

Sharon Buckland, spokeswoman for Caltex owners Chevron New Zealand, said the rising New Zealand dollar contributed to the fall.

But Mr Bagrie said it was likely the dollar would weaken in the next year, and that would push fuel prices back up.

A robust Chinese economy - combined with "geo-political tensions" such as the Iraq war - would also keep price and demand up, as would events such as severe Northern Hemisphere winters, and violent hurricane seasons in the United States.

The halcyon days of US$30-a-barrel oil had passed, and it was "highly unlikely" petrol prices of $1 to $1.10 a litre would return, he said.

BNZ head of market economics Stephen Toplis also believed a weakening New Zealand dollar would put "substantial upward pressure" on fuel prices, but downplayed the influence of China.

"I think we tend to over-focus on China ... there are countries other than China who use oil."

He expected the world economy would remain "relatively robust", and further exploration would be needed to keep pace with demand.

However, that could, in itself, create a Catch-22 situation.

High oil prices drive exploration, but as new fields come online, the price drops, reducing the need for, and affordability of, exploration.

"If the price of oil is $20 to $30 a barrel, it means certain oil fields are not economic."

There were currently shortages in both extraction and refining capacity, though the "bottleneck" was probably greater in refining.

However, there were "thousands of oil experts out there who can't make up their minds", he said.

"It would be remiss of us to suggest it was a permanent downward trend."

Oil prices have had their steepest decline since the Gulf War in 1991, falling from July's peak of US$78.40 ($119.10) a barrel, on easing Middle East tensions, ample fuel stocks and slowing US economic growth.

Opec President Edmund Daukoru said this week the slide in prices was harming investment and that "something needs to be done".

"We are already talking among ourselves in the Opec fold. The price is very low, and it's not good for investors," he said.

Mr Daukoru said the Organisation of Petroleum Exporting Countries expected the global oil supply to exceed demand by 1.8 million barrels a day by the second quarter of next year.