New Zealand now has a magic number for petrol prices: $3 per litre.
Fuel prices have skyrocketed since the US and Israel lauched their war against Iran in late February.
The price for a barrel of Brent crude oil has been as high as US$115 again at times this week – after trading around US$66 before the conflict.
And that flows through here New Zealand where 91 octane petrol on Monday cost on average $3.42 a litre, while diesel has edged ahead at $3.43, according to user generated fuel price tracking app Gaspy. In the past 28 days, petrol prices have risen by 36% – while diesel has surged by 85%.
MBIE data published yesterday showed combined onshore and on-water stocks sat at 58.7 days of petrol cover, down marginally from 59.3 days on March 25.
The rising cost of fuel prompted the Government to announce a support package to ease the impact. From April 7, about 143,000 working families with children will get an extra $50 per week through a boost to the in-work tax credit. The boost will last for one year until April 1, 2027 – or until the price of 91 octane fuel drops below $3 for four consecutive weeks – whichever comes first.
So how long will it take for prices to drop below that magic $3?
University of Auckland Emeritus Professor in Economics Basil Sharp explained to 1News that it could get complicated.
He expected it to take months, "literally months", for the current backlog of oil waiting to travel through the Strait of Hormuz to work its way through the system.
According to Al Jazeera last week, nearly 2000 vessels were stranded near the Strait, waiting to resume their journeys.
Looking back to the oil crisis in the early and late 1970s, Sharp said prices tended to shoot up, come down "a little bit", and then "hover around that mark" before bouncing up again to higher prices.
"So what tends to happen in the oil market is that prices go up, but they tend to stay at an elevated level, and so there will be downward pressure."
He said nations in the Organisation of the Petroleum Exporting Countries (OPEC) were "presumably" enjoying the higher prices.
"They are now going to be thinking, 'oh, gosh, you know, oil prices are higher, demand, generally speaking, is elastic. So we can ramp up the price, and the drop in consumption is less than the percentage increase in the price'.
"So that's the kind of future that we're looking at going forward. So I don't see anything immediate happening in terms of prices coming down."
Mesbahuddin Chowdhury, associate professor in management, marketing and tourism at the University of Canterbury, said based on previous experience during Covid and the Russia-Ukraine war, fuel prices rose much more sharply than they fell.
He explained that if the war ended today, it "may take some time" for prices to fall again.
"Many production facilities in the Gulf area have been badly impacted. So it means the production will take some time to return to this normal stage.
"It will decline, but it will take more time."
Chowdhury said that if all hostilities ceased immediately, it would take a "minimum" of two to three weeks for fuel prices to start to come down.
But that all depended on how long the war raged.
What if the war continues?
Both agreed that a prolonged conflict would worsen fuel prices.
"If this war continues for another month, many countries will be in deep trouble because production has already dropped, especially in the Gulf countries," Chowdhury said
"And if this war is not stopped as soon as possible, I think the entire world will suffer quite badly. That is something that no one is actually prepared for."
For the time being, however, he said people should stay calm, as there was still a lot of fuel stock in reserve – both on land and at sea.
Sharp said the oil crisis would simply "drag on".
PM says the relief is targeted at the genuinely squeezed middle lower income working New Zealanders. (Source: 1News)
"I just see the pressure on oil continuing in the near term."
He said, however, there was a glimmer of hope for New Zealand.
According to South Korean media, at a press conference last week, Iran's ambassador to Seoul said South Korean ships could pass through the Strait of Hormuz conditionally, subject to coordination and consultation with Tehran.
Since the closure of the Marsden Point oil refinery, South Korea and Singapore have become New Zealand's primary sources for refined fuel.
"So there is a bit of light on the horizon," Sharp said.
How can we avoid this in future?
Sharp and Chowdhury said the current panic about fuel was a clear message to the Government to start looking at alternative energy measures.
Sharp described it as a "strategic policy gift".
He said it wouldn't be a good idea for the Government to adopt a similar approach to the one in the 70s and 80s, when Robert Muldoon's "think big" saw billionswere invested in projects to diversify the economy. Instead, Sharp said it could be an opportunity to remove "unnecessary barriers" to renewable energy development.
"The generating companies now are really seriously looking at wind developments, large-scale solar, and continued development of geothermal.
"So it could be consenting, regulations, that sort of thing."
Chowdhury said this latest disruption could send a "very strong message" to the Government that they "need to think in a bigger picture " and look at developing alternatives.
"Whether it can be renewed energy or something like that, which allows us to be more self-dependent rather than depending on others.
"These are the opportunities that show the government that these are the issues you should address as soon as possible, irrespective of different political views, because when this talk even occurs.
"We may have different political views, but this is a national crisis where everybody needs to be on the same page."
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