10 Dec 2022

Fuel prices tipped to rise in new year

5:13 pm on 10 December 2022

By Wyatt Ryder of Otago Daily Times

A motorist uses a pump as they re-fuel their car with unleaded petrol at a filling station in central London

Photo: AFP or licensors

This Christmas drivers may relish the gift of lower fuel prices, but a cocktail of geo-political events might see costs rise in the new year.

Earlier this year, fuel prices rose to more than $3 a litre for 91, however filling the tank has slowly become easier on the wallet.

Yesterday, the price for 91 at popular Dunedin petrol stations ranged from $2.25 to $2.33 a litre, while the price for 95 ranged between $2.39 and $2.49.

The Russian invasion of Ukraine and an increased demand as the world moved on from Covid-19 were cited as some of the main driving factors, however the movements behind the market were "a bit of a mystery", AA motoring affairs principal policy adviser Terry Collins said.

There were many reasons for the price drop, such as the value of the dollar increasing, demand normalising and increased supply, he said.

The cut in the government fuel excise tax also helped keep prices down.

However, fuel prices were decided by more than just the companies selling them and a storm of events has been set in motion which might see that price rise sharply early next year.

What would happen was hard to pin down, as so much was going on at the same time, Collins said.

The first big factor was the European Union, Australia and the Group of Seven, including Japan and the United States, capping the import price of crude Russian oil, which came into effect on Monday.

The EU would follow up with a refined fuel import ban in February.

Unhappy with the move, Russia refused to sell any fuel at the capped price of USD$60 a barrel, despite offering it to other countries at the same price or cheaper, Collins said.

This move coincided with changes to China's Covid-19 restrictions, which would see their economy kick up and demand for fuel increase.

To top it off, China would be celebrating Chinese New Year in February, a huge event that increased demand across many industries, all which needed fuel.

It would take weeks or months for the effects of those events to hit local prices, but they also had an effect on the greater fuel industry, he said.

Most fuel that people purchased was on the "physical market," while large industries pre-purchased fuel months in advance on the "future market."

However, the combination of events had made the price of fuel so volatile that many professional future market traders have pulled out, throwing a spanner in to the greater fuel economy.

"It's just a big industrial shake up," Collins said.

There were many other issues affecting prices as well, such as governments investing in fuel alternatives and the move away from petrol discouraging new infrastructure, such as fuel refineries, being built.

"It's like trying to juggle 17 balls at the same time."

Ultimately it looked like drivers would benefit from low prices over the holiday season, but he expected a rise as the events caught up to our pumps.

The government's fuel excise tax cut ends on January 31, however a decision on a possible extension is expected soon.

This story first appeared on the Otago Daily Times website.