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The big factor for election 2011 – petrol prices

Written By: - Date published: 5:50 pm, January 3rd, 2011 - 67 comments
Categories: election 2011, energy, transport - Tags:

I’ve been traveling around for Christmas/New Year’s. I take the bus for my daily commute so, although I know objectively that petrol is up about 20% in the last year, it hadn’t hit me until I drove about 1000kms around NZ.

The extra cost isn’t actually that much but it’s a still shock when you fill up. My little old car is pretty thrifty, getting about 6l/100km. Which means, with lower fuel economy on gravel roads and being stuck in traffic a couple of times, I used about 80l on my travels. 40 cents more a litre than last year is only $32 – a relatively small part of my Christmas/New Year’s Budget.

I imagine most of you have a similar experience – even if you drive every day, the increase in petrol prices on your weekly budget is probably only the cost of a coffee or two. Yet it’s very irking, even anger inducing, to hand over a small fortune when you fill up your car and remember that just recently it cost $20, $30, $40 less to get the same amount of product. It seems to me that the people who feel the price of petrol most at an individual level because of their car dependent lifestyles are families in the outer suburbs of the cities and provincial towns – and that’s swing-voter country.

And the price of fuel does have a real economic impact. From memory, the rule of thumb is that a 10 cent price rise knocks 0.1% off GDP. Everything depends on cheap fuel to transport raw materials and manufactured goods over huge distances in our globalised economy – increase the cost of the fuel and you increase the cost of everything (to the point where countries’ ability to undercut us with lower wages may soon be overwhelmed by transport costs, ending globalisation).

So, petrol price increases not only hurt the economy as a whole, they cause out-sized personal annoyance. It got me wondering what the political impact is.

Turns out, it’s pretty damn strong.

I’ve taken MED’s petrol price series and Roy Morgan‘s party support and confidence in government series – the Roy Morgans are fortnightly and the petrol prices weekly, so I have compared the average price for each fortnight with the matching poll.

Let’s start with confidence in government. In these graphs, I’ve inverted the secondary axis with the petrol price on it to make the comparison easier.

The correlation is -0.66. For those unfamiliar with correlations, they can range from -1 to 1. 1 means a perfect relationship, a rise in one variable is always matched by the same percentage rise in the other variable. 0 means no link between the two. -1 means that the variables have a perfect inverse relationship: a rise in one is always matched by the same percentage fall in the other.

A result of -0.66 is a strong relationship – as you can see in the graph, a rise in petrol prices is strongly matched with a fall in support for the government.

This graph covers both Labour and National governments. It’s fair to say that petrol prices are a major determinant of support for the government – higher petrol prices mean fewer people have confidence in the government.

This explains the counter-intuitive fact that support for many governments around the world actually rose during the start of the Great Recession in late 08, early 09. Voters were showing their relief at lower petrol prices.

Now, let’s look at support for the governing party vs petrol price:
Again, you can see how the two lines tend to move together. -0.49 is another strong link.

Disregarding the initial run-up in support after National came to office, you can see that support has declined as the petrol price has risen. With a correlation of -.062, the two are strongly linked. The actual relationship may be even stronger but the poll numbers have a lot of ‘noise’ in them, jumping around a lot as you can see due to statistical variation, not just actual changes in voter support.

You can’t say ‘if the petrol price is X the support for the government will be Y’, there are other factors at play too, but you can say, with a fair degree of confidence, that rising petrol prices will mean lower support for whoever is government. Going off the results above, we might expect that petrol at $2.20 a litre will see National’s support in the mid-40s – the danger zone.

That’s bad news for National, of course, as we look to a year where oil is expected to break $100 a barrel again. And it’s another reason to expect a July election – petrol prices generally drop during the Northern summer then increase in the Northern winter due to demand for heating oil.

But it’s also bad news for stable government in the age of peak oil. Will governments continually be thrown out of office after one term by voters angry at the price they’re paying at the pump? And how else might the public express its dissatisfaction as lifestyles built on cheap oil become unaffordable?

It’s also depressing news for those of us who like to believe that voters choose based on policy (and even those who think personality is all that matters) – it turns out the elephant in the room that matters, probably, more than any other factor is completely beyond the control of domestic politicians …. unless they cut petrol excise.

67 comments on “The big factor for election 2011 – petrol prices ”

  1. fabregas4 1

    Petrol is a key component of all commodities and as such an indicator of rising prices in general. I am certainly noticing the increase in petrol prices and a noticeable rise in all prices – try buying some beer right now which is also the domain of the ‘joe-blow’ voter. It is an undeniable truth that the cost of living is rising, at least in part due to the GST/Tax Cut swindle. This is policy affecting people.

  2. Colonial Viper 2

    If you introduced a small amount of smoothing to the political poll results – say a 3 or 4 period moving average – and did a correlation between that and the petrol price, the relationship between the trends would be even stronger.

    • Marty G 2.1

      yeah. I did it by quarter and the numbers were much stronger:

      National after March 2009 and petrol: -0.81
      Labour: -0.53
      Confidence in government and petrol: -0.62

      didn’t put it in the post because it gets too complicated and people just try to avoid the issue by arguing over the methodology.

      • Colonial Viper 2.1.1

        Those correlations are kick ass – nicely done. Interesting that the correlation is much stronger for a National Govt. Speculating – that may be because National promises more and more in terms of improved living standards, even as they hugely under deliver.

        Now, lets see if the Govt reduces taxes on petrol just before the elections. Of course it would be a completely fiscally and environmentally insane thing to do, but

        • Draco T Bastard 2.1.1.1

          But NACT happens to be psychopathic enough to try it to remain in power so that they can sell off the rest of our assets.

  3. ghostwhowalksnz 3

    I had noticed while travelling around the lower NI, the complete absence of road works. Usually there would be a couple of resurfacing or realignment works to travel through, as well a major works somewhere could be expected.
    There was almost zilich, with the Te Rapa interchange the only one I passed.
    Looks like Key and English have put the brakes on provincial roadworks for the last financial year. And with most provincial seats being held by National, you wont be hearing any noises of complaint about the lack of infrastructure spending in the regions

    • Adrian 3.1

      Possibly, but it’s more likely that they don’t want to pay penals over the holidays. I drove Wgtn-Ak in late Nov and there were roadworks all the bloody way, but admittedly they were mostly patch up jobs no real big improvement type of stuff unlike in the last years of Labour when Marlborough got 3 big new bridges and a lot more passing lanes etc. On the subject of patch up jobs, God it was a relief to get on the new surface past Huntley, the rough, noisy corrugated Highway 1 was getting on my tits, it was very tiring and I’ll bet it increases driver fatigue to a huge degree. It is not just narrow roads and badly cambered corners that cause accidents

      • mickysavage 3.1.1

        I have driven Dunedin – Invercargill – Te Anau – Milford and saw no works. Worth a look at the NLTP to see what the budget was and then check in 6 months to see if it was actually spent.

        • jcuknz 3.1.1.1

          You missed the Christmas present the council organised for us who use SH87 with the new roundabout by the Stadium 🙂
          I’m waiting to hear about the first accident caused by the mad Port Chalmerites coming into town and not going around the roundabout but cutting straight across the wrong way, The roads are not in service yet … BUT! Maybe when the bridge is built that will solve the danger?

    • handle 3.2

      Expect less roading activity in the provinces and neighbourhoods. Joyce, Blinglish and co diverted funding from local road maintenance and building to pay for their highways of national party significance. Potholes ahoy.

      Checking the NLTP/council actual spend is a good idea as councils have been under pressure not to increase rates to make up for the government shortfall.

      But most voters will not know what and who are to blame unless the Opposition gets a whole lot better at joining the dots for them.

    • Zaphod Beeblebrox 3.3

      SH17 between Orewa and Waiwera has a temporary 50kmph limit. When asked why Transit say that the road is unsafe at 100 kmph and needs re-surfacing. Except there’s no money. If we can’t afford to mantain our highway network- maybe SJ should be telling us why.

  4. RedLogix 4

    Marty,

    Brilliant start to the year…thanks.

    But surely the most pertinent political consequence is that the loss of confidence applies to all governing parties regardless of hue.

    So what’s Labour’s plan then? (I know the Green’s plan … any chance of Labour linking arms on this?)

    • Marty G 4.1

      I don’t know what the Goffice’s plan is either. ‘Don’t rock the boat’ policies and ham-fisted attempts at stunt politics?

      • mickysavage 4.1.1

        There is a complete understanding of the problem but a bit of bravery is required.

        Labour needs to:

        1. Say there is a problem.
        2. Commit to a huge increase in PT infrastructure.
        3. Put the breaks on all motorway development.
        4. Put incentives on alternatives to transport, for instance telework.
        5. Talk to people about how in the near future they will be able to only drive as much as they can now and they need to adjust to this.

        Feck I am sounding like a green …

        • Draco T Bastard 4.1.1.1

          1.) Admit that Peak Oil has happened according to IEA
          2.) That the price of oil will not go down at all due to demand exceeding supply
          3.) Admit that this will slow down economic growth, especially exports, if not stop it altogether
          4.) Same as your 3.)
          5.) Bring public transport back into public ownership and make travel on it free or have a nominal price of $1 (Yes, I’m talking massive subsidies here). Ramp up taxes and rates.
          6.) Tell people that their cars are now uneconomic and that a recycling program for them will be started.

          Feck I am sounding like a green …

          Just starting to realise that we must pull back to living within our Renewable Resource Base. Anything else is uneconomic and will harm our society.

        • thomas forrow 4.1.1.2

          Feck I am sounding like a green …
          welcome

        • Colonial Viper 4.1.1.3

          Labour needs to take on a red-green tinge.

          Very pro worker. Very pro satisfying well paid jobs. Very pro sustainability and increasing our social + environmental capital.

        • M 4.1.1.4

          MS, agree with all but number 5, especially the part where Labour needs to differentiate itself from the pusillanimous NACT, people will be driving a hell of a lot less if not junking their cars completely like DTB says.

          Matt Simmons, some time before his death said the responsible employers would liberate their staff and do the whole telecommuting thing. I cannot for the life of me fathom why firms still allow staff to fly around the country wasting precious fuel and money when video conferencing in most cases could achieve the goal of intended meetings.

          Jeff Ruben’s talks need to be broadcast – an honest economist at last.

          From the oilcrash site there is a link to a report that was given to the government about ‘Oil “Emergency” response – more like a thinly veiled peak oil warning if you ask me.

          Excerpt from executive summary:

          Executive Summary

          This report provides material to assist the Ministry of Economic Development to
          develop an Oil Emergency Response Manual. The report has been developed on the
          basis of:
          •a recent IEA report on saving oil in a hurry that provides analysis of instruments
          that could be used in New Zealand;
          •experience with demand restraint measures for other issues and products; and
          •an analysis of New Zealand demand data and of likely reductions associated with
          individual measures.
          A review of the 2000 UK fuel crisis

          http://oilcrash.com/articles/odr_rep.pdf

  5. tsmithfield 5

    What I think is a bit weird is that petrol prices when oil was approx $140 per barrel got up to approx $2.20 per barrel. Now we are nearly at that at $90 per barrel. So whats the difference? I know there’s the Kyoto tax and gst. But those factors don’t make that much difference.

    • RedLogix 5.1

      I’m not sure ts, but my guess is that here in NZ the oil companies tend to ‘smooth out’ price of crude oil as it is reflected at the price of petrol at the retail pump. The spike you are thinking of was fairly short-lived and for this reason the industry was able to absorb it.

      Besides wasn’t the NZ dollar much lower against the US at that time?

    • Marty G 5.2

      the higher gst and ets are something like 10 cents (5%), so not insignificant.

      then you’ve got higher nominal costs for other inputs other than crude due to normal inflation, looking at the MED series, there seems to be a couple of cents in that.

      and the NZD is buying a few cents US less than it was in the first half of 2008 – that adds a couple of cents to the petrol price.

      and remember that, while oil peaked at USD$147, it was actually lower most of the time.

      In NZD, oil averaged $167 a barrel between May and October 2008, when petrol average $2/l, it is about $120 now.

      • tsmithfield 5.2.1

        I agree those things are certainly factors. On the other hand, I think there was problems with capacity in refineries back then that was also impacting on prices back then. So there were several sources of price pressure back then as well. Maybe the petrol companies are just screwing us.

        If you are interested here is an excellent free live chart for following currencies and commodities I use it a lot and find it really handy. The monthly chart for oil shows oil was over $100 for a period of approx four months back then.

        • Zorr 5.2.1.1

          The issue that potentially caused the price to not spike as high was the GEC. Due to the massive crunch, even though crude prices were sky high the demand for petroleum products had become rock bottom.

  6. Some people have been advocating that NZ use pine to make biofuels in NZ as a oil replacement for fuel:

    A forestry scientist says new Zealand has the potential to become self-sufficent in transport fuel, and biofuel produced from pine plantations is likely to be the greatest contributor. http://www.radionz.co.nz/news/rural/64141/pine-plantations-%27biggest-potential-for-nz-biofuel%27

    smaller countries such as New Zealand and Denmark were well-placed to introduce new biofuel technologies….
    Twenty per cent of our energy comes from renewable sources. That is soon to be 30 per cent and we are aiming for 100 per cent by 2050.”
    http://www.rotoruadailypost.co.nz/have-your-say/news/bright-future-for-biofuel-gives-nz-edge-say-expert/3934056/
    ———————————
    The PCE (Parliamentary Comissionor for the Environment) has also been looking into fuels in NZ and recently released a report, and will be doing more work on biofuel and NZ:

    http://www.pce.parliament.nz/publications/all-publications/some-biofuels-are-better-than-others-thinking-strategically-about-biofuels/
    – Some biofuels are better than others “The purpose of this report is to take a fresh look at biofuels – to think strategically about how they might lessen our dependence on fossil fuels and thus reduce our greenhouse gas emissions.”

    • Marty G 6.1

      two problems with biofuels –
      1) they’re very inefficient in terms of energy out for energy in, and the energy in comes from oil
      2) it doesn’t solve the cost problem. if biofuels are a small-scale substitute for oil then they will just take on the world price for oil (it doesn’t matter if NZ is self-sufficient in an international commodity, we pay the world price).

      • RedLogix 6.1.1

        Marty,

        I’m not sure I fully agree that the EROI (Energy Return on Input) for all biofuel processes is always so poor. I know that it was the case for the absurb and damaging corn to ethanol process that the Bush regime implemented as a massive vote buying boondoggle in the corn growing areas of the US… but not all biofuel processes are necessarily the same in this respect.

        Your second point is more political. If the process was owned and run by the state … for the economic benefit of NZ… then there is no reason to be paying global prices.

        It’s often overlooked that NZ already produces a portion of it’s own fuel (although oddly enough I understand much of the crude oil produced here in NZ is exported because Marsden Pt cannot handle it at present.)

        • Draco T Bastard 6.1.1.1

          I’m not sure I fully agree that the EROI (Energy Return on Input) for all biofuel processes is always so poor.

          Best I’ve heard of is 12:1 return from sugar cane in Brazil. Not even close to the 30:1 that we’re presently getting from conventional oil. Possible but don’t expect the same extent of transport that we presently use.

          Your second point is more political. If the process was owned and run by the state …

          Very political but, then, with global trade about to take a hammering due to Peak Oil then probably more than possible.

          • RedLogix 6.1.1.1.1

            Agreed DtB but I vaguely recall from threads on the The Oil Drum that conventional oil EROI has fallen below 30:1 in the last decade; most new fields being a lot less than that.

            In the long run anything better than 3:1 may well be ok for a biofuel process as long as the basic inputs are fully renewable and not resource limited (eg land, sunshine, water, right climate).

            • Draco T Bastard 6.1.1.1.1.1

              …the basic inputs are fully renewable and not resource limited.

              Everything is resource limited within a cyclical time frame (Regeneration, regrowth, cleansing and recycling). It’s those limits that we need to get back within as the use of fossil fuels has allowed us to go far beyond what the natural environment can sustain.

        • KJT 6.1.1.2

          “The largest obstacle for using forest products as an energy source is the opportunity cost of using timber as a fuel rather than an export commodity. Timber is worth at least three times as much as an export for structural materials, pulp and paper than the import of oil it would replace. The cost of developing a forest products energy infrastructure makes the difference larger. The relative costs may change in future as fossil fuels become more expensive to mine and if carbon emission taxes are imposed.
          New technologies could enable bio-fuels to replace the more expensive to produce hydrocarbons such as petrol and diesel. The amount of growing area required to replace consumption would take a large portion of New Zealand’s usable land. Demand for these fuels is relatively inelastic, however it may eventually drop as fuel efficiency of vehicles is increased, political constraints are placed on transport energy use and/or there is a massive rise in price.
          Using forest waste as an energy source is much more promising. Many forest products plants already use their waste stream as fuel for the plant. Using waste already on site reduces transport cost. Most of the woody waste produced is presently unused and left to rot in the plantation. Alternatives to leaving waste on site as a fertiliser include spraying with wastewater residues. (Solving another ecological problem).
          Using forest waste to power production plants and distributed generation near the sources of supply is economically feasible given current technology. It costs 1/3 of electricity supply from the national grid.
          From 3 million Ha of forest, with good utilisation of the 50% waste stream, increased forest yield rates and efficient energy conversion potentially up to 22 PJ could be obtained. Forest products plants are changing to use woody waste as fuel when oil heating and generation becomes due for replacement, and when new plants are built. Savings in energy costs to the forestry industry would be significant as well as saving about $600 million annually in imported oil. Advances in tree yield and waste utilisation could increase this amount as could some forestry specifically for energy production.” (Unpublished academic essay 2009).

          Total fossil fuel energy consumption in 2008 was 500PJ. (EECA NZ).

          For sustainable energy in NZ it will have to be a mix of several different sources. I expect biofuels will play a part especially with transport fuels. But other sources such as wind, geothermal, hydro and tidal will be required to make any credible impact on fossil fuel demand. Along with energy use reduction strategies such as Green buildings.

  7. kriswgtn 7

    Food Prices will also be a contributing factor

    The price of a Lamb Roast @ Prestons 4 days before Christmas Day $56

    Who the hell can afford to pay this exorbitant price to feed their family

    Bah Just go smile and wave

    How many people went hungry this Christmas in this bright new prosperous New Zealand

    Just go Key= Get

    • RedLogix 7.1

      I’ve wondered that myself. I’m on a pretty good income, but with the prices of meat at present my partner and I have more or less gone vegetarian this year. Probably not so many folk are going hungry, but likely their diet is leaving a fair bit to be desired.

      A frequently overlooked aspect of high oil prices is that the global price of fertiliser (and many other farm inputs) is directly linked to it. It’s not just transport that is implicated.

      • Herodotus 7.1.1

        Then there is also the price of grain (also price inpact on bread and cereals)-this being given about 2 years ago for the massive increase of poultry.
        Farmers are making little $, If inputs are min and cost to the consumer prohibitive there is something in the middle not making sense? this excludes those dairy farmers who have a free reign on our environment and get govt assistance when it rains too much or not enough, and pocket record Fonterra payouts.
        Marty to add topping to you creation- there is also the price of power to compound the issue.
        re cost of transport how about rational commentary regarding the non existance involvement of Lab in town planning of greater Auck (Many of labs policies have inpacted Auck negatively). There have been and in a few cases still are opportunities for managed growth of Auck along commuter lines, but politics is not about good decision making or good policies just holding power. As evident by how Auck has grown WITHOUT any input from govt.
        So marty interesting presentation, but sadly yet another case of the opposition getting into power by default, no answers and no policy and more sadly No Vision. On reflection NZ does quite well inspite of any govt, so why do we need the burden of govt ??????

  8. BLiP 8

    Yep – petrol is way up there, but so too is:

    bread = $5 for a loaf of Vogels

    milk = $2.30 a litre

    butter = $4.50 a pound

    . . . for those of us who managed to score a break on the tax cuts, the money’s long gone. How’s everyone else surviving?

  9. Chris Harris 9

    Marty’s brilliant finding is corroborated by the political experience of the 1970s oil shocks, which were caused by the peaking of US domestic production in 1970/1971 and a ten-year wave of high world oil prices which followed. I’m old enough to remember the slogan “At a dollar a gallon we can’t afford Rowling,” i.e. the Labour PM in 1975. Even as a schoolboy I knew it was absurd to blame the NZ gov’t for such international events but that message took a while to percolate through to the local grumpy vote. And so a 1972 [Kirk] landslide was turned into defeat, though admittedly if we had had MMP Labour might have hung on in coalition with Values (the Greens) and Social Credit. Throughout Muldoon’s term of office, 1975-1984, he struggled with a huge oil import bill that made the mixed economy of the day look sicker than it really was, so contributing to the Rogernomics revolution and its excesses. As late as 1983 petrol prices were over $2 a litre in today’s money. Thus high oil prices really are a kind of poisoned chalice for whoever happens to be in government at the time, unless softened by abundant domestic energy resources which Muldoon, to give him credit, did his damndest to develop. To follow up on what some of the other commentators have said, a degree of Churchillian leadership is definitely indicated for Labour as we go into the still more disruptive global oil peak some 30 y later, because if current oil prices unhorse Key, still higher prices will likely rebound on Labour in 2014 unless this has been headed off by better PT, biofuels, wind, solar and an effective communications strategy: “At $3 a litre we can’t afford Goff” will be the predictable slogan in 2014 otherwise. (PS: for inflation adjusted record of 1970s oil prices compared to today, see http://www.inflationdata.com/inflation/images/charts/Oil/Inflation_Adj_Oil_Prices_Chart.htm )

  10. ZeeBop 10

    The price of oil is cheap as chips right now, and we are demanding
    more and more of the stuff, which is being pumped faster and faster,
    drying out wells quicker. So we are going to hit peak oil and then
    we are going to hit peak wall. We can’t burn it if there’s none left,
    and we are not reflecting the fact of peak oil in the oil price.

    • Draco T Bastard 10.1

      So we are going to hit peak oil and then we are going to hit peak wall.

      We’ve already hit Peak Oil – now we’re running as hard as we can for the wall.

      • ZeeBop 10.1.1

        Something that is cheap now, is going to a whole lot more expensive in
        a few years time. Shoes, Bikes, fencing for the vegie garden made from
        the lawn you don’t mow anymore. The faster we can use oil up, the
        harder the shock wave when we do hit the next hurdle.

  11. Overall strength of the economy determines both petrol prices and support for incumbents. You need something more than correlations to make your case.

    • Marty G 11.1

      the strength of the new zealand economy has bugger all to do with causing oil prices. If it did, the price of oil would be $30 a barrel right now. to the extent they correlate, the causation is the other way round – world oil prices affecting NZ.

      Show your evidence that the strength of the economy determines support for incumbents. Now, I know its generally true, but what drives the strength of the economy? Oil prices.

      • Marty G 11.1.1

        when are you neoliberal dinosaurs going to wake up and realise that energy, in particular oil, isn’t just another part of the economy – it is the economy?

        • Zorr 11.1.1.1

          Or that saying “now prove the negative of whatever the hell I just said” isn’t actually a particularly constructive form of discussion.

        • Draco T Bastard 11.1.1.2

          Oil isn’t the economy – it’s the energy that drives the human economy. Most of what we use within the economy comes from nature though so it’s far more accurate to say that the environment is the economy. It is this fact that causes the economy to be a zero sum game (contrary to what the neo-libs say) as the environment is limited.

      • ZeeBop 11.1.2

        The might of the US armed forces does dictate the price of oil.

        However the GDP of a nation, I bet, was deeply linked to the amount of extra surplus
        petrol caused by new oil discoveries.

        Now new oil is becoming harder to fine, if at all, the GDP of the built up west
        will fall year on year. I bet we will see shrinking economies as we head into
        the decline of peak oil.

        Because every gallon burnt creates work activity in the economy, and so
        if the amount of oil available is shrinking then the economy is shrinking too.

        China is basically continuing to produce the consumer lifestyle the west for
        the west, so it can build itself up.

        But this also can’t last. Since we will not start rebuilding massive manufacturing
        plants here in the west because we really can’t afford wiggles that don’t fall down.

        • Colonial Viper 11.1.2.1

          the GDP of the built up west
          will fall year on year. I bet we will see shrinking economies as we head into
          the decline of peak oil.

          Western economies won’t be able to survive continuous GDP reductions and stay in their current form. Because our interest bearing debt based money system expects the continuous creation of more debt, not less, to be able to fund itself.

          Large amounts of money are owed to the private banks at any one time. But the money owed increases with time due to interest. Where does the new money come from if the economy is shrinking, and people are paying off debt (destroying money out of the circulation) instead of taking on new debt?

      • Eric Crampton 11.1.3

        Go to Google Scholar. Type in the terms (economic retrospective voting). Basic upshot of a whole pile of literature – the better the economy is doing, the better an incumbent will do.

        Think back to 2008 when your oil price graph tanks. What was going on right then? Economic expectations went down the toilet. And so oil futures tanked too. It’s international economic expectations that drive international oil prices (along with the normal supply expectations). The world economy drags the NZ economy around. And economic performance drags incumbent support around.

        Look there are two ways oil prices and the economy affect each other. In the 1970s, it was oil supply shocks that ramped up the price of oil and trashed the economy. In 2008, it was the economy tanking that killed oil prices, which then went back up as the economy picked up. Long term, oil prices are going to be going up as demand comes up and supply constraints slowly start biting.

        Or, try it another way. John Key has the political courage of a sack of limp month old cabbage and all he cares about is being reelected. If there were this huge real connection between gas prices and getting re-elected, wouldn’t he have dumped the ETS or delayed its implementation on petrol?

        • handle 11.1.3.1

          What do you know, just before Christmas the government announced a review of the ETS – http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10696255

        • Marty G 11.1.3.2

          “Think back to 2008 when your oil price graph tanks. What was going on right then? Economic expectations went down the toilet. And so oil futures tanked too.”

          In late 2008, when oil prices crashed after the oil spike induced a global recession, support for the government went up. So you had a failing economy and rising government support. As I point out in my post that was an international phenomenon, not just an NZ one. Economic performance not correlating with government support but the inverse relationship with petrol prices holding.

          “Long term, oil prices are going to be going up as demand comes up and supply constraints slowly start biting”

          Mate, you’re soaking in it. This isn’t a long-term or gradual phenomenon, it’s a cycle of severe shocks. The second one may already be starting.

          “John Key has the political courage of a sack of limp month old cabbage and all he cares about is being reelected. If there were this huge real connection between gas prices and getting re-elected, wouldn’t he have dumped the ETS or delayed its implementation on petrol?”

          If he understands the link, he might do just that. In other countries some governments did reduce fuel taxes during the last shock. And, here, Labour delayed transport joining the ETS.

          • Lanthanide 11.1.3.2.1

            “As I point out in my post that was an international phenomenon, not just an NZ one.”
            You should see if you can dig up similar stats for other OECD countries – that is support for the reining party/government vs oil prices, see if they’re also correlated.

            If you could gather 5-6 examples showing a strong link, it’d make a very nice contribution to The Oil Drum website.

          • Eric Crampton 11.1.3.2.2

            You think the crash of 2008 was due to an oil shock? Interesting perspective.

            I trust that you’ve invested most of your assets then in oil futures?

            • Marty G 11.1.3.2.2.1

              no, I don’t, because being a market speculator is an immoral, parasitic activity.

              you don’t think the largest oil shock in history had anything to do with the subsequent global recession? Despite the fact that every global downturn in the last 40 years has followed an oil shock? Are you saying that you think the little old sub-prime crisis caused a global recession but a record oil shock at the same time didn’t?

              And if so, what do you think pricked the international housing bubbles including the US subprime market? Do you think it was the fact that oil prices sent the mcmansion owners in the exurbs into fuel poverty? You need to actually read the research that is coming out. Look at where the house price crash started – in the most fuel-dependent exurbs.

              And, this is all you avoiding the point that support for government rose in late 2008 even as the global economy tanked.

              • I was avoiding the point out of politeness, given that this is a Labour party blog. What happened at the end of 2008? Think hard. Something that just might have made Kiwis happier about who their government was (or was about to be) and about the likelihood that NZ would better weather the international financial crisis (correctly or not). Something unrelated to petrol. Sometime around the 8th of November or so.

                Oil prices are pro-cyclical. When economic activity is strong, demand for oil is high and prices ramp up. When it’s weak, demand slackens and prices drop. Sometimes, there’s an exogenous shock to oil prices – like in the 1970s – that drives recessions. Oil prices in the mid-oughties were just reflecting cyclical demand factors, most notably China and India really pushing hard on demand, but also a bit of expected reductions in future supply. Long term, holding demand constant, prices will rise with expected supply reductions; it’ll rise more quickly with demand increases. At the same time, we become more efficient in using oil and get more GDP per barrel used.

                Speculation is hardly immoral. If you really have privileged knowledge about just much oil prices are going to skyrocket in the next few years, you can transmit that knowledge to the market by buying oil futures options. Prices adjust to this new information, oil gets a bit more expensive, and entrepreneurs are sent a better signal about the importance of finding substitutes for oil. If you think you know more than what’s already embedded in the price signal. Me, I don’t think I have that kind of knowledge. So I don’t play in the oil market.

                • Colonial Viper

                  Long term, holding demand constant, prices will rise with expected supply reductions; it’ll rise more quickly with demand increases. (1) At the same time, we become more efficient in using oil and get more GDP per barrel used. (2)

                  1) You talk as if price movements will be gradual and cyclical. They will not. We are now entering a period of extreme price volatility. The speculation you are talking about will make it worse.

                  Sure, financial speculation may not be immoral (in the biblical sense), just destructive to the real economy and to real jobs.

                  2) Yes we are becoming more efficient in creating GDP per barrel of oil. Its been estimated that we now get 1.3-1.4x more GDP per barrel of oil than we did 30 years ago, which is a good improvement.

                  Unfortunately, to maintain modern lifestyles and give the large developing economies a chance at improving standards of living for their people we will need to get 20x more GDP per barrel of oil in the next 30 years.

                  This has never been done before, we don’t even know what this might look like.

                • Marty G

                  this isn’t a labour party blog.

                  the fact that there was a change in government does not explain why confidence in government so closely matched petrol price. It doesn’t explain why the decline in support for National during the ‘recovery’ has matched the rise in petrol prices so closely. It doesn’t explain why support for Labour started to tick up in July 2008, before the election, at the same time as petrol prices started to fall.

                  You’re looking at -.6 correlations over 120-odd time points and saying ‘coincidence’. That’s not scientific on your part, it’s wishful thinking.

                  Speculation is betting that a real buyer will be willing to pay more (or less) for a product in the future than the current price. To be a successful speculator you just have to be better than average at calling the market. When you win you get a claim on a share of society’s wealth – that’s what money is – but what have you done to create that wealth? You haven’t found any oil, you haven’t consumed any oil, you’ve just stood between supplier and consumer and been a bit smarter or (increasingly with the use of computer-algorithm automated trading) just a tiny bit quicker.

                  Oil prices drive economic cycles, not the other way around. Energy is not just a part of the economy, it is the basis of the economy.

  12. Jenny 12

    Rising fuel and transport costs alone won’t dent Key’s lead.

    People will put up with a lot if they think there is no alternative.

    Marty as you seem to be suggesting, rising fuel costs (and all the other flow on costs) are also likely under a Labour led administration.

    Without a real alternative the net result may be just resignation.

    It’s also depressing news for those of us who like to believe that voters choose based on policy (and even those who think personality is all that matters) – it turns out the elephant in the room that matters, probably, more than any other factor is completely beyond the control of domestic politicians …. unless they cut petrol excise.

    How about this; to lessen the effect of the fuel price rise which is caused by factors beyond our control, but which will flow on to all other costs, rescind the rise in GST, make all groceries GST Free and cover the loss in tax revenue by Financial Transactions Tax.

    capcha – “requesting”

  13. Lanthanide 13

    Apparently NZ has the 3rd cheapest petrol in the OECD, behind only the US and Canada.

    I’ve thought for a a couple of years now, that since about 2000 or so the government should have been ramping up the tax on petrol, at 1c per quarter, 4c per year. That’d be 40c higher than present, by now, with the money all fully earmarked for public transport initiatives only. Then, when the price of petrol started ramping up there could be an automatic pull-back of the tax, to help cushion the blow on consumers.

    This sort of thing might be extremely prone to political meddling though – like dropping the price 10c in the 3 months up to election for example, so pretty strict controls and triggers would need to be legislated for.

    • Deadly_NZ 13.1

      Yeah right and the NACTS would have found that nice little nest egg and given it to their mates as well…

      and it would be cheaper if the govt or the petrol companies put the money iinto Marsden Point.
      I did see a great doco on when the oil runs out and it’s people who are capable of thinking outside the square that will survive. Because incase you don’t know that if the oil runs out you life as you know it STOPS DEAD.

      No fuel
      No Plastics
      Nothing that is made from oil is available again.

      Then i reckon that a few landfills will be dug up and the gazallion tons of plastic and other stuff that we have wasted in the past 50 years will become gold.

      Anti Spam word Sciences and thats what will be needed in the brave new world with out oil.

      • Colonial Viper 13.1.1

        We do have substitutes for a lot of the uses of oil, but its the transport fuel thing which is really going to hurt when prices per barrel skyrocket. Cars, planes, trucks, ships. Cargo freight and personal transport.

        My bet is that science will not have mass solutions available in time. And some of the easiest solutions are going to rely on coal.

        • Lanthanide 13.1.1.1

          Yeah, that point needs to be stressed further.

          We do not have an impending energy crises. We have an impending *liquid fuels* crisis.

      • M 13.1.2

        ‘Then i reckon that a few landfills will be dug up and the gazallion tons of plastic and other stuff that we have wasted in the past 50 years will become gold.’

        Absolutely Deadly, they will be the mines of the future and bottom-feeding first worlders will get a taste of what it’s been like for those who inhabit slums in Manilla and favellas of South America.

  14. The PCE report suggests that biofuel is good as a replacement for diesel, not petrol:

    “First, the kinds of biomass currently being used as feedstock for biofuels in New Zealand cannot take us very far….

    it makes sense to focus on biofuel substitutes for diesel rather than substitutes for petrol. We run our trucks, tractors, and fishing boats on diesel, and, if we are concerned about energy security, diesel is more important than petrol. Most of our cars run on petrol, but, in contrast to the transport of freight and the cultivation of our land, there is much more flexibility in the demand for petrol. Electric cars appear to be coming into their own, and many trips can be made by public transport, cycling, and walking. The decrease in congestion on Auckland’s motorways when the price of a litre of petrol rose above two dollars in 2007 is testament to this flexibility.

    if biofuels are to play a significant role in our energy future, we should move toward developing drop-in biodiesel made from wood. Some biofuels are good, some are bad, and some are probably downright ugly. The challenge that lies before us is to develop and commercialise biofuels in a practicable way that will…

    significantly reduce our greenhouse gas emissions,
    improve our energy security,
    and genuinely make our country cleaner and greener.”

    http://www.pce.parliament.nz/publications/all-publications/some-biofuels-are-better-than-others-thinking-strategically-about-biofuels/

    The PCE is doing work on Transport in particular recently the focus has been:

    “Two projects are well advanced. One – on the potential for large scale production of biofuel in New Zealand – builds on the knowledge gained from advising Select Committees on two biofuel bills. The other is focused on Solid Energy’s plans to mine lignite and convert it to diesel. The associated carbon footprint is a particular concern.”

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