Global crude oil prices have slumped to an almost seven-year low, but the waning strength of the New Zealand dollar may work against further fuel pump relief for motorists heading into the Christmas holidays.
Despite fuel price cuts last week, and a further 2c fall yesterday to below $1.90 litre for the first time since February, further reductions are becoming less likely.
A strong New Zealand dollar acts as a buffer to escalating prices, but the kiwi has in the past year fallen by about 12c against its US counterpart, from about US77c to US66.99.
The Organisation of Petroleum Exporting Countries (Opec) has not announced a production ceiling, so investors are now beginning to take a long-term punt that crude prices will remain lower for longer.
West Texas Intermediate crude fell 3.5% to $US38.57 and Brent crude from the North Sea fell 3.5% to $US41.20, the latter to its lowest since February 2009, amid continuing concerns over global oversupply.
Automobile Association petrol-watch spokesman Mark Stockdale said refined fuel prices had been down and then up during the past fortnight.
"This time last year, retail prices were $2 a litre and diesel $1.32/litre, but we're not expecting big reductions in pump prices like we had last Christmas, mainly because [crude] oil prices are already down at the levels they fell to last December-January,'' Mr Stockdale said.
While crude was near seven-year lows, the cost of refined fuel, at $US63 a barrel, was only at an 11-month low.
Because of the US12c difference in foreign exchange, the cost of imported fuel was up US8c since January, plus a further 3c for GST.
He noted the crude price made up just over 25% of the petrol pump price, with the mostly fixed Government taxes making up nearly 50%.
"So even if refined commodity prices fell by 10%, the retail price would only fall by about 2.5%,'' he said.
Mr Stockdale expected crude prices to remain depressed in coming months.
Opec last Friday ended its policy meeting with disagreement, Reuters reported.
US crude futures for front-month delivery fell below $US40 per barrel on Monday after Opec's failure to agree on an output target to reduce a bulging oil glut that has cut prices by more than 60% since 2014.
Investors are betting on the oil price staying lower for even longer, pushing US crude futures for delivery nearly 10 years away below $US60 a barrel.
This could possibly harm the ability of US shale producers, among the casualties of Opec's strategy of pumping hard to retain market share, to lock in profitable prices for future deliveries.
"As a result of the collapse in oil and gas prices, the market is worried that you're going to see less capital spending, you're losing a lot of a good-wage jobs in the oil patch, and people are worrying that we're going to see a snowball of defaults among high-yield energy issuers,'' Scott Wren, senior global equity strategist at Wells Fargo Investment Institute in St Louis, said yesterday.
Gain Capital analyst Fawad Razaqzada said: "Oil is going to make lower lows and lower highs for the foreseeable future and, in terms of market reaction post-Opec, I'm not surprised, but it does leave the door open for prices to fall.''
In US markets, the oil majors Exxon and Chevron fell about 4% and were the biggest drags on the Dow Jones and the S&P index', while Dow Chemicals and DuPont fell more than 2%.
The impact of the fall in oil prices offset some of Friday's US market gains, which were triggered by a strong jobs report.
