New Zealand fuel prices set to climb further as three global conflicts tighten oil supply

HouGarden New Zealand, 14 September — Terry Collins, principal policy adviser at the New Zealand Automobile Association, told broadcaster 1News that three separate events were simultaneously constraining global oil supply.

"One is the shutting off of the East-West pipeline by the Saudis — that was an alternative to the Strait of Hormuz, which is shut," Collins said. "Iranian oil is not getting through — traditionally it went to China or India."

The third factor, he said, was Ukraine's continued strikes on Russian oil infrastructure, "to the point where President Trump has asked the Ukrainians to stop attacking Russian diesel facilities".

Saudi Arabia closed its East-West oil pipeline after it was struck by drones as Yemen's Houthi rebels continued to advance, giving them greater power to disrupt shipping through the Red Sea's Bab al-Mandab Strait — the gateway for around 7 per cent of global oil.

US President Donald Trump publicly called on Ukrainian President Volodymyr Zelensky to stop targeting diesel infrastructure. "Let him go after targets, but not diesel fuel, because he's causing a shortage of diesel fuel," Trump said. "This isn't done by the Middle East, this is done by what's happening with Russia and Ukraine." No agreement has been reached and Ukraine has not stopped the strikes.

Collins noted that Ukraine had little incentive to ease off before the US midterm elections in November. "I can't see any relief coming to us until around about that time, and maybe even out to Christmas," he said.

Crude oil was trading at around US$107 to US$108 a barrel at the time of the report, Collins said, and New Zealand motorists had already absorbed sharp increases the previous week. "There'll be more price jumps because those price increases were only for previous events," he said.

Collins did not expect prices to reach the record highs recorded between April and May, when diesel reached about $3.80 a litre in some locations and petrol was around $3.50 a litre — all figures in New Zealand dollars per litre at the retail pump. "The uncertainty around the initial attack isn't there. We've had time to adjust some of the pipelines, the logistics have shifted to allow for that — but there's still a real tightness in the market," he said.

Collins identified four factors driving prices that were beyond New Zealand's control: crude oil prices, refining costs — known in the industry as the crack spread — shipping costs, and a weaker New Zealand dollar.

"We don't have a supply problem, we have a price problem," he said, pointing to additional storage capacity at Marsden Point, the North Island fuel storage and distribution facility. "A lot of that is being driven by the refineries and the additional revenue they're getting from the shortage of oil and the cracking spread."

Higher transport and logistics costs flowing from dearer diesel can also push up construction and freight expenses, adding modest indirect pressure to development budgets and household running costs for New Zealand property owners and buyers.

Collins said the sustained high prices could accelerate New Zealand's shift toward electric vehicles. "The unintended consequence of this is we might have a cleaner fleet in the future as consumers seriously consider buying battery electric vehicles and plug-in hybrids," he said.