Why petrol prices are at a six-month high

Petrol prices are at a six-month high, but a leading economist says there's bugger all Kiwis can do about it.

The national price is at $2.30 for 91 octane, up from $2.05 in January according to the AA.

"As oil prices go up, we're going to see household becoming more cautious - going out less, spending less money on nice things," economist Shamubeel Eaqub told The AM Show on Friday.

And unless you're a friend of the US President or a Saudi royal, cutting back might be all you can do. Eaqub says around half the pump price is dependent on what's happening overseas - in this case, new US sanctions on Iran oil exports and the decision by the Organization of the Petroleum Exporting Countries (OPEC) to cut back on production.

"With supply cutting back, that's probably the biggest reason why oil prices have gone up," said Eaqub.

OPEC countries, which include Iran, Saudi Arabia and Iraq, account for nearly half the world's oil production. When they cut supply, it drives prices up.

"For them, high oil prices means they have more revenue," said Eaqub. "For countries like Saudi Arabia, most of their government revenue comes from oil - so if oil prices are low, they have less money to play with. They have a huge economy that's reliant on welfare payments - they have very high youth unemployment, they have a lot of welfare programmes, so if oil prices are low they have domestic instability."

Shamubeel Eaqub.
Shamubeel Eaqub. Photo credit: The AM Show

Because far-flung New Zealand is so dependent on imports, our falling dollar is also a problem.

"The New Zealand dollar has come back a little bit. Late last year the currency was about 70c, now it's about 65c against the US. As the New Zealand dollar falls, it makes our imports more expensive."

The other half of the cost is almost entirely made up of taxes - BP earlier this year said they accounted for 44 percent of the pump price.

Since 1970, National and Labour-led Governments have increased taxes on petrol about the same amount. While National has promised no new petrol taxes should it win the next election, Eaqub says it's unlikely existing taxes are going to be removed.

"We're not going to see changes in tax policy, so the only thing we can look for is what's happening internationally, and whether or not OPEC increases supply."

Prices peaked at about $2.48 in October last year. Petrol companies have been criticised as quick to pass on cost increases, but slow to cut prices when costs fall.

"The Commerce Commission is looking at whether or not our oil companies are too fast to rise prices," said Eaqub. "Are they fattening their margins?"

Newshub.

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