Just in case anyone forgets, we are now getting truckie protests about fuel prices reminiscent of the first term of the Helen Clark government. This is no doubt the start of many protests to come from truckie and consumer alike.
Midwives are rejecting rural clients because it’s too costly in fuel to service them.
People are giving up their rural houses and moving their families into cabins in trailer parks within Whangarei because fuel makes it just not worth it.
There is simply no way this fuel price issue is going away. That’s because we are among the highest consumers of fuel in the world per capita, burning through around 672 litres of fuel on average every year.
So much for the short term. In the medium term, it is very possible this is about to get worse, due to the rapidly altering geopolitical setting. And it’s really hard to fix where oil prices are going.
On the supply side, Iran is the big unknown. Predictions for how much Iran’s 2 million bpd of exports will be lost to U.S. sanctions range from half a million bpd to 2 million bpd (that high side would mean most of its exports).
Saudi Arabia could fill the gap, at the right price. It can respond faster than the U.S. shale oil industry. Saudi Arabia’s politics however are very unsettled right now. The new King is all over the shop and putting it all on the line executing a U.S. resident who is also a key Saudi dissident journalist while in a Saudi embassy. And then there’s its’ reaction to Qatar. And then there’s its fruitless war in Yemen. Etc etc. It’s still the kingdom that had all the time and all the resource in the world to alter its economy away from oil reliance, and instead for six decades chose to just keep pumping crude and screw themselves and everyone. No one knows what will happen there next.
Washington-based Rapidan Group expects a supply surplus of more than one million bpd (barrels per day), triggered by an aggressive U.S. shale supply response to high prices and a hit on emerging market demand. Speaking to Reuters, Rapidan Group President Bob McNally said that “Barring big geopolitical disruptions, we’re hearing an echo of 2013 and 2014 when a tidal wave of prospective non-OPEC supply growth compelled OPEC and Russia to wither surrender market share with large proactive cuts or accept big price declines.” They also expect U.S. crude supply alone to grow faster that total global consumption.
At the other extreme, London-based Energy Aspects is projecting a shortfall in supply of 300,000 bpd, with demand curtailed by the impact of trade tariffs. First, though, Energy Aspects is calling for the final quarter of 2018 to have the tightest supply-demand balance in over a decade. In a note titled “Empty” the consultancy said: “a combination of any near-term spare capacity and the resurgence of Chinese teapot (refinery) buying” would cause an unusually tight balance.
That may be enough to drive prices to $100 a barrel – perhaps in turn sowing the seeds of demand destruction. So maybe a boom then a bust. The history of oil price cycles indicates that this is not impossible.
This is, of course, the kind of stuff that loses governments elections really really fast.
We haven’t even started the real public discussion about what James Shaw’s carbon legislation might do to fuel prices. Thankfully we don’t have to go there yet: this government needs to buy time to get to that particularly narrow policy window.
It will need to be smarter than Prime Minister Robert Muldoon introducing carless days.
In the longer term, building public transport infrastructure in Auckland isn’t going to deal with a short-and-medium term political problem that is getting really big.
What if it really got worse?
A 2005 consultant’s report for the Ministry of Economic Development looked at an oil crunch and how the country could cope.
Cutting discretionary trips, combined with mandatory speed limit restrictions, could provide consumption savings of 7%. Compulsory restrictions on car use such as the return of carless days, could provide another 4-5%.
The Prime Minister has sought to deflect responsibility for recent price rises onto the fuel retailers. That will only last so long. The politics of fuel is accelerating.
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