US economy key to pump prices in NZ

New Zealand motorists should receive some protection from sharp rises in the price of petrol at the pump as a sluggish United States economy and a continuing low dollar keep interest rates stable in the US.

A meeting by Opec ministers today will set the tone for oil prices in the immediate future after two days of trading volatility resulted in oil slipping below $US80 ($NZ112.70) a barrel then rising above $US82 a day later.

Oil reached a peak price of $US144 a barrel in July 2008.

At that time, the New Zealand dollar was trading at US76c.

Yesterday, the dollar was worth US71c.

By December 2008, oil had fallen to $US31 a barrel and had increased slowly in value since then, Craigs Investment Partners broker Chris Timms said.

"We are a long way off the peak and we have some protection from the oil price through the strength of the currency.

"However, any signs of a recovery in the US economy will result in our currency weakening. Even if the oil price stays stable, you can expect to pay more at the pump."

Oil rose 2.4% yesterday as the US dollar weakened after the US Federal Reserve pledged to keep interest rates near zero for an extended period.

Opec ministers indicated they planned to keep oil output cuts in place when they meet today in Vienna.

Saudi Oil Minister Mohamed bin Dhaen al-Hamli told Reuters Opec might not need to adjust targets this year after it scaled back output by 4.2 million barrels a day in late 2008 to prop up falling oil prices.

The slide in oil prices earlier this week was caused by fears that a 16-month high in consumer inflation in China might lead to further Chinese monetary tightening as early as tomorrow.

China has already tightened bank reserve requirements twice this year, with each move hitting commodity markets worried about demand growth.

Mr Timms said that any expectation of global economic growth would push up the price of oil.

While there was no thought yet that petrol would go above $2 a litre in New Zealand, pump prices would rise as the global economy improved and the value of the kiwi fell against the currencies of its trading partners.

Much hinged on the actions of the Federal Reserve, which repeated its pledge to hold interest rates at record lows to foster the US economic recovery and ease high employment, he said.

The Fed's assessment of the US economy was more upbeat.

It said the job market was stabilising, an improvement from its January statement, which said the deterioration in the labour market was abating.

It also said business spending on equipment and software had risen significantly, also an upgrade from its last assessment.

But the Fed cautioned that spending by consumers could be dampened by high unemployment, sluggish income growth, lower wealth and tight credit.

Mr Timms said the Fed's pledge of lower interest rates for longer gave some hope for investors.

The Dow Jones industrial average gained about 30 points.