Get ready for another petrol increase this week. Last week, the Dubai crude benchmark, which most of New Zealand’s imports are priced of, shot up over 4% in NZD terms. Unless that rise reverses right away, petrol will have to rise past $2.25 a litre. We’re now pay $160m a week for oil imports – $2b a year more than a year ago.
We’re seeing a pattern where small events cause oil prices to leap and then the prices not falling when the event ends. For example, last week oil workers in Gabon went on strike. It took just 0.25% of world supply off the market but oil rose several percent. When the strike ended, the oil price didn’t sink. In fact, it kept rising.
Increasing unrest in tiny producers like Syria and Yemen, and the slim threat of revolt in Saudi Arabia, is used to explain these oil prices – but that’s a shallow analysis that missed the real story.
The world supply situation is incredibly tight. For nearly two months Libyan imports have been offline (apart from one shipment from rebel-held Tobruk last week). The Saudis are supposedly using spare capacity to fill this gap but it’s not clear how much this is really happening.
There just isn’t enough oil to go around and the price will keep rising until economies go into recession and start demanding less oil.
New Zealand imports about 150,000 barrels of oil a day. This time last year, oil was $110 NZD a barrel and that meant we were paying about $117 million a week. Now oil is over $150 a barrel and we’re paying over $158 million a week. An extra $40 million a week – 1% of GDP – is being sucked out of our economy for no extra stuff.
In total, we’re paying 4% of our GDP just to import oil. If we could cut that consumption just 10%, we would have $800 million more a year to invest in our own country rather than seeing it go up in smoke.