Petrol, grocery, airline prices in NZ could all spike in wake of Saudi oil field attack - economist

A sophisticated drone strike has knocked out the world's largest oil site in Saudi Arabia, leading to a reduced crude oil production by almost 6 million barrels a day – half of the kingdom’s output.

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Economist Cameron Bagrie discussed the economic implications of the drone strikes to a Saudi Arabia oil refinery. Source: Breakfast

New Zealand-based economist Cameron Bagrie predicts petrol prices are going to rise as a result of the strike. But that at this stage, he said, "you've got to be a little bit careful with the Chicken Little sort of scenarios in regards to how much".

"We've got two big uncertainties out there," he told TVNZ1's Breakfast this morning, including how quickly oil production can get back online. "And we don't know the answer to that."

The other uncertainty, he said, is whether there will be more attacks.

"If we see more attacks, we can bet your bottom dollar that petrol prices are not just going to be going up, they’re going to be going up a long way," he said. 

"Saudi Arabia to the oil industry is a little bit like Beauden Barrett to the Rugby World Cup, and we don't want to lose him on the eve of the Rugby World Cup."

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The attack, carried out by the Houthi rebels, knocked out half of its oil supply.

New Zealanders should "start to see some movement" in petrol prices "towards the back half of this week", Mr Bagrie said.

He said analysts will be closely watching the "immediate reaction across all markets in regard to how high international oil prices start to move" over the next 24 hours.

However, Mr Bagrie also said it was important to consider the context of the expected price increase, noting: "Oil prices around the globe at the moment – around $60 a barrel. If we go back and have a look at where they were in 2018, they averaged around sort of $70, so going back up 10 bucks is not going to call the end of the world, but of course, there are some scenarios out there.

"If we start to see more attacks, retaliatory-style attacks, then you start to see the tit for tat sort of stuff, then you've got potential for 100 bucks written all over it."

Mr Bagrie said we could see an increase of up to 20 cents at the pump if international prices move up.

"If we look at what the baseline costs, the import component of the petrol price at the moment is around 75 cents, so if we start to see international oil prices move up by say, 10 per cent, maybe 20 per cent, you could see a potential movement in petrol prices, anything from eight to 10, to 16 to 20 cents."

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The Commerce Commission recommends softening the rules so that petrol companies can switch between suppliers. Source: 1 NEWS

He said the drone strikes could potentially affect not just prices at the pump, but also import and transport costs.

"We consume a lot of petrol, but of course, it's a pretty important part of our logistics, your transport system, as well," he said.

"We're not just going to be watching for potential pain at the pump in regards to money getting siphoned out of our pockets – it could put up import costs for transport companies. That could flow into supermarket bills and, of course, airline travel."

He reiterated, however, that there are "some pretty big uncertainties out there", noting that oil prices have been "coming down for the past sort of six months".

"We've got a little bit of a buffer before they start to spike back up, before they get to levels that I think is really going to hurt the global economy."