NZ Petrol Prices Rise: Middle East Conflict & Supply Concerns OR Auckland Fuel Costs Jump 11c: Middle East Crisis Impact OR Petrol Prices NZ: Middle East Conflict Fuels Hike & Supply Fears

Diesel prices in Fresh Zealand jumped by 44 cents a litre in a single day, sparking warnings from transport operators that the cost of moving goods – and the price of consumer items – is set to rise. The surge, coupled with a smaller 11-cent increase in the price of 91 octane petrol over the past four days, is raising concerns about inflationary pressures and the vulnerability of New Zealand’s supply chain following the closure of the Marsden Point oil refinery.

Diesel Demand and Jet Fuel Linkages

The price hike isn’t simply a reflection of global oil market volatility. According to James Smith, general manager of policy and advocacy at National Road Carriers, diesel is experiencing higher demand due to its close proximity in the refining process to jet fuel. Reuters reported a significant 72% increase in jet fuel prices in Singapore on Wednesday, reaching US$225.44 a barrel. The Otago Daily Times details these price movements.

New Zealand imports refined fuel, meaning it’s susceptible to price fluctuations in international markets. Smith suggests the disproportionate increase in diesel compared to petrol could be a matter of timing. “We may have had a load of petrol already on the water. Nothing more complicated than diesel being on the wrong side of a line in the sand,” he explained. Diesel’s additional use as heating oil also contributes to its price volatility.

Impact on Supply Chains and Retail Prices

The immediate consequence of the diesel price increase is expected to be higher costs for businesses reliant on freight transport – which, according to Smith, represents 93% of all products delivered by truck. Retail NZ chief executive Carolyn Young confirmed that retailers, already operating in a challenging economic environment, will struggle to absorb these additional costs. “Higher prices are not what any of us want to see, but in such a tight economic environment, there is minimal ability for many business owners to cushion the impact of such a global crisis,” Young stated. She anticipates that sustained conflict in the Middle East will inevitably lead to increased prices for consumers.

Mainfreight managing director Don Braid echoed these concerns, telling RNZ that New Zealanders should prepare for price increases across petrol, diesel, freight and international travel. RNZ reported on these expectations. Braid emphasized that these increases would be passed on to customers, and a prolonged conflict in the Middle East would exacerbate the situation.

New Zealand’s Fuel Security Concerns

The closure of the Marsden Point refinery has heightened concerns about New Zealand’s fuel security. The country now relies entirely on imported refined fuel, making it vulnerable to disruptions in global supply chains. Braid highlighted current jet fuel reserves – 24 days’ worth – as a potential area of concern. While fuel companies assure there’s no immediate supply issue, he anticipates price increases. Channel Infrastructure, which handles approximately 40% of New Zealand’s transport fuel, has increased its storage capacity to 300 million litres, including an additional 100 million litres added in 2023, in response to these vulnerabilities.

The government has implemented stockholding obligations, requiring importers to maintain 21 days of diesel, 24 days of jet fuel, and 28 days of petrol. Plans are also underway to increase the diesel storage requirement to 28 days by 2028.

Broader Economic Implications and Price Forecasts

Economists are forecasting significant inflationary pressure as a result of the rising fuel costs. Infometrics chief forecaster Gareth Kiernan expects retail fuel prices to climb by 20-30 cents over the coming weeks if current international oil price rises are sustained. Westpac economists estimate that a US$10 increase in the price of oil adds approximately 11 cents per litre to domestic pump prices, and that current conditions could push 91 unleaded prices to around $2.85 per litre, adding around 0.5 percentage points to annual inflation this year. The increase in refining margins is also contributing to the price surge.

Westpac’s analysis suggests that, depending on the duration and scope of the conflict in the Middle East, oil prices could rise to between US$100 and US$185 per barrel. The New Zealand Herald provides further detail on these economic risks.

Fuel Company Responses

BP New Zealand, Z Energy, and Gull have all acknowledged the situation and stated they are closely monitoring developments. BP and Z Energy emphasized their diversified supply chains and ability to maintain fuel supply, while Gull noted high demand and logistical pressures. All companies indicated they regularly review and adjust prices to remain competitive.

Looking Ahead: The immediate focus will be on monitoring the geopolitical situation in the Middle East and its impact on global oil supply. The extent to which New Zealand consumers will feel the pinch will depend on the duration of the conflict and the ability of fuel companies to manage supply chain disruptions. Continued volatility in international markets is expected, and businesses will demand to adapt to potentially higher operating costs. The government’s fuel stockholding obligations are intended to provide a buffer against short-term supply shocks, but the long-term solution may require further investment in domestic refining capacity or diversification of fuel sources.