I noticed on the bus yesterday that BP had put their prices up to $1.829 a litre for 91 octane petrol, and thought that was the highest price I’d seen in a while. It turns out that prices haven’t been this high for around 18 months, since the tail end of the oil spike in mid 2008. The NZ Herald says more:
AA PetrolWatch spokesman Mark Stockdale told NZPA the weaker exchange rate was partly to blame for the price rise.
Petrol was “hitting an uncomfortable price point” and motorists would be feeling nervous after prices passed $1.80, he said.
Until the rises of last week retail fuel prices had remained unchanged since January 19, when they fell 3c a litre across the board.
Crude oil and refined petrol prices rose between 4 and 6 per cent during February, with refined diesel up 10 per cent – reducing oil company importers’ margins.
In June 2008 there was a record fuel price jump of 12c per litre in just 48 hours. By the end of the month, petrol was selling at $2.11 per litre.
I don’t expect prices to go above $2 a litre any time particularly soon. The February 2010 “OilWatch Monthly” indicates that the amount of oil being produced is still well down on its mid 2008 peak, meaning that global demand for oil still has not hit uncomfortable heights of 87-88 million barrels a day, instead settling around 85-86 million, as shown in the graph below:
In particular, the second graph shows that OPEC production is significantly less than it was in 2008. As a result, OPEC has some significant spare capacity that they can turn on to ease price issues should they so please, so there’s no real worry of a sharp spike for now.
However, the question in my mind is what happens when demand starts to jump above that 88 million barrels a day that was the max output during July 2008 when prices went completely nuts? That’s when I think things could get interesting again, with the result probably being that either prices will go incredibly high again (maybe even higher than July 2008) and stay there, or that the high prices will kick off another financial crisis like what happened in 2008, and prices will crash as a result.
I do wonder what petrol price would make Steven Joyce start to worry about the sense of spending $11 billion over the next decade on motorways. $2.50 a litre maybe? Or $3?
Don’t forget that excise tax is going up (3¢?) along with the introduction of the ETScam levy (another 3¢?), plus any increase in GST (October?) on top of all of that.
I would hate to think that a regional tax would lumped on top of that (e.g. in Wellington for Transmission Gully), as the Govt would already be making a killing from the increased GST take (as they charge GST on the price inclusive of excise = a tax on a tax).
Great post. A few points though… World Liquids Fuel Production is not the same thing as crude oil production. It includes things like natural gas liquids and other fuels that have no bearing on the price of petrol at the pump.
Also more critical than when the peak in global oil production occurs is the number of countries with sufficient production capacity to export oil. The world is divided in to oil importing nations and oil exporting nations. As time goes on, net oil exporting countries are flipping to become importers, creating an exponential effect on demand. Egypt and Argentina are the latest countries to flip to be oil importers. There are riots in Egypt right now because of diesel shortages, and Argentina is importing petrol for the first time in 30 years.
Looking further out, the biggest net exporter in the world is Saudi Arabia, and they look set to flip some time between 2020 and 2030, as their own internal demand for oil increases.
The hilarious thing is high oil prices actually increase demand in OPEC countries as they then have more money to spend and invest in growing their economies, i.e. increasing their energy use…
Also remember a recent USDOT report stated that a symptom of peak oil will be wild price variance, sadly masking the root cause, we could slip from recession to recovery to recession all the while the world’s government’s book slip further and further into the red… We need to delink GDP growth and energy growth and soon or the 1930s await…
Finally Jarbury I don’t think any price will deter Joyce he believes cars pay for themselves no matter what as he clearly stated in an editorial he got printed in the Herald about carbon pricing where he clearly stated cars will pay for themselves no matter what the carbon price, why should he think any differently about oil prices..?
Just out of interest- what do you think fuel will cost by the time Waterview, Transmission Gully and Holiday Highway are opened? There must be a good chance one or all of those projects will get stopped dead in the tracks- especially if they get done as PPPs.
Don’t worry TopCat, if there are any problems the Electric Car Fairy will come along and immediately convert the 3.8 millon vehicles in the nation’s vehicle fleet to electrics and change over all the support infrastructure and boost the electricity supply accordingly.
@Topcat, anyone who says they can predict the oil price going forward (especially over the long term) is making things up, only a trend of up will be possible…
For example the USDOT report stated it will be possible to see prices swing between US $50 – $300 a barrell…
The formerly conservative IEA’s director recently said we need to learn to leave oil before it leaves us and the CEO of Shell has recently confirmed we are at the end of cheap oil, Joyce will go down as one of NZ’s biggest fools…
Good question though TopCat. If we get halfway through building those dinosaur motorways and oil’s $200 a barrell life will certainly be interesting.
Nick, you say that so sarcastically. Joyce etc. are counting on the electric car fairy you know!
“There must be a good chance one or all of those projects will get stopped dead in the tracks- especially if they get done as PPPs.”
Well, at least Waterview is not being done as a PPP. Could you even stop a PPP? I mean why would the P(rivate) partner ever want to do that? Another black mark against them.
Sweden’s 1994 fuel tax hike made their pump prices equivalent to what we will be paying with oil at $200 barrel. It didn’t have the intended effect on traffic growth. In 1994 Sweden already had Europe’s highest rate of bicycle ownership and both of Sweden’s big cities had excellent PT systems. Those tax increases and the more progressive but equally large fuel tax increases in Britain in the 1990s and our experiences of $2+ a litre petrol have proved beyond reasonable doubt that the predominant response is to drive less car rather drive less.
It is much cheaper to convert engines to run on LPG or CNG than to convert to electric motors. However, for the most popular models on New Zealand’s roads it will probably be even cheaper to replace the alternator, starter and computer chip with mild-hybrid versions.
I disagree Kevyn. NZTA data showed that state highway traffic volumes in 2008 were well down on 2007 levels. In some months the difference was 10% compared to the previous year in some spots (like the harbour bridge). Higher prices DID make people drive less.