Prepare for higher pump prices

New Zealand motorists are starting to pay the price at the pump for the foreign policy calls of United States President Donald Trump.

But it is not all Mr Trump's fault. The recent increase in oil prices, the lower value of the New Zealand dollar and Mr Trump's tough sanctions on Iran are just the start.

Brent crude oil prices have spiked to above $US80 this week, at the same time as the New Zealand currency has fallen in value against the US dollar.

Spot oil prices are causing the most immediate price rises at the pump, but worse is to come.

Spot prices fluctuate wildly, often driven by geopolitics such as the US sanctions on Iran. The five-year forward price usually trades in a narrower range, anchored by longer views about future supply and demand.

Over the past three years, long-dated prices have been weighed down by the belief the growth in US shale production, combined with the adoption of electric vehicles, will keep prices under control.

This is about to change. Petrol prices, already at record levels, are poised to go higher. And then will come the Government's petrol tax.

Prime Minister Jacinda Ardern says her decision to raise petrol taxes by 9c to 12c a litre does not breach her pre-election promise of ''no new taxes'' in her first term. Auckland motorists will pay an extra infrastructure tax, although parts of the North Island have enjoyed much cheaper petrol prices than motorists in the South.

New Zealanders have become used to lower petrol prices. The change will come as a shock to people now having to pay extra to fill their vehicles. Less than a year ago, Brent crude was only $US45 a barrel.

Without doubt, those most affected will be on low to medium incomes with mortgages, children and hire-purchase debts. Although interest rates will be lower for longer, that can no longer be said for fuel prices. Electric vehicles are out of the reach of many, at this stage.

The higher fuel prices have come at a good and bad time for the Government. Ms Ardern's Government needs more money to spend on its transport programmes, such as light rail in Auckland. Every increase in price provides more tax revenue for the Government to spend.

On the negative side, the very people Labour wants to keep onside - people who are struggling to meet their living costs - will be penalised.

This will be a true test. It is timely to remember the previous National-led government tried without success to find a way through the opaque pricing methods adopted by large petrol companies. This Government has experienced a similar lack of success in prising open the secrets of petrol pricing.

The Organisation of the Petroleum Exporting Countries (Opec) has cut daily production in an effort to keep oil prices high. Countries like Saudi Arabia need money to try to maintain its interests in an increasingly volatile area. Every dollar rise in barrel prices adds billions in income.

The higher fuel prices will have a wide economic impact on New Zealand. At some stage, retail prices will start to rise, particularly for imported goods. Travellers will be paying higher prices for air fares as fuel hedges by airlines start to run out.

Inflation will rise, pleasing the Reserve Bank and perhaps prompting higher interest rates.

On a brighter note, New Zealand exporters will start receiving better prices for their goods as the dollar remains low. There is always a fine line for New Zealanders between personal welfare and the success of New Zealand Inc.

Petrol prices are forecast to rise to $3 a litre. Higher prices will encourage US shale producers to get back into the market. Increased supply will put a ceiling on prices. For the foreseeable future, however, Kiwis need to prepare for even nastier shocks at the pumps.


The NZ $ started falling on the day of the Oil and Gas Exploration announcement so perhaps there is a correlation.