Kelly Eckhold: We have to look at the fuel situation "day by day"

New Zealand has just over 50 days worth of petrol, and a week less of diesel, while the war in Iran wages on. 

The closure of the Strait of Hormuz continues to impact the global oil supply, and the countries we generally import oil from are considering closing up shop on exports to ensure their own security.

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Episode Transcript

Speaker 1 (00:05):
You're listening to the Weekend Collective podcast from News Talks EDB.

Speaker 2 (00:10):
The discussion on oil continues. I'm not sure how reassured
I was after talking to Shane Jones, not that he
was seeking to reassure, he was just pointing, you know,
he was drawing a broader brush on infrastructure and the
sort of the degrading that we're seeing on assets that
maybe we need to rely on having been more self
sufficient on would be my take on it, but anyway
to get an economist's point of view, I'm joined by

(00:32):
Westpac Chief economist Kelly Echold. Kelly, thanks for your time. Look,
you've described this as a very serious situation. How far
away are we from a worst case scenario?

Speaker 3 (00:45):
Well, well, there's probably still another six or six weeks
or eight weeks or so to go. I mean, it's
very much kind of looking at the situation day by day.
The key issue will be at what point can flows
of crude oil start going around the world and feeding
the refineries in Asia that we rely on to fuel

(01:07):
our own industries here.

Speaker 2 (01:09):
So what so what would it take What would actually
a genuinely worst case scenario look like. Is it basically
running out of oil.

Speaker 3 (01:19):
Well, the worst case scenario, I mean, you can generate
a whole lot of various scary scenarios, But we did
model the implications of the Straits of Poor Moves being
closed three months, and that would see oil prices continue
to rise up towards one hundred and eighty odd dollars
a barrel. That's obviously going to push fuel prices up
quite considerably, enforce a whole lot of kind of energy

(01:42):
saving measures, I think, across the economy so that we
can continue to make do with what we're going to
have available.

Speaker 2 (01:49):
Just to clarify something for me, is it twenty percent
of the world's oil that comes through the straits of
horror Moves? Because just from a from a distance, that
doesn't sound as bad as I thought, but it seems
to be. Can you put that in context for us?

Speaker 3 (02:05):
Yeah, well, it is twenty percent of the oil that
goes through the straits of Hormones. So the little bit
of ability to redirect oil given its closed. For example,
there are pipelines over over the study Arabia for example,
where they can get stuff out by the Red Sea.
But I think the important thing to remember is that
the oil supplies are really unevenly distributed around the world,

(02:26):
and in particular Asia sources you know, probably fifty percent
or more of its energy supply supplies from those Gulf states,
and obviously they're really large energy hungry, industrialized economies that
without that oil will have some quote severe knock on
effects the global growth and obviously through to New Zealand.

Speaker 2 (02:46):
So we've already seen prices, you know, edge up here.
How quickly would the prices really start to get going
at that period you mentioned of three months? Is that
what we look at.

Speaker 3 (02:57):
All one well, I mean, prices are already rising. Basically
the fuel companies are having to reflect the costs that
they're having to pay for refined products. We have to
remember here that it's not just the oil price that matters,
it's actually the refined fuels price. What's happening with those
markets is that those margins are widening because refineries can't

(03:19):
sell what they can't refine. So there's increasingly a bit
of a squeeze coming through there, coming through our Asian suppliers.
So that means that you'd probably expect to see fuel
prices rise fairly steadily through the whole period, and then
you know, perhaps in three months time. If everything is
sorted out by then you would see things start to

(03:39):
fall back. And that's the scenarios that we're modeling right now.

Speaker 2 (03:43):
How quickly do those oil prices actually spill into the
wider economy.

Speaker 3 (03:48):
Well, quite quickly. I mean you've already sent it at
the pump, already prices up quite considerably. It'll just be
basically pretty much as we say it every day.

Speaker 2 (03:58):
What about into the you know, the wider economy, like
food prices, other commodities.

Speaker 3 (04:04):
Yeah, that'll come a bit of a lag because it
has to go through the kind of whole production process.
We probably saw a bit of a sign of that
during COVID, where the supply chain seized up and certain
things started to get more expensive, But it took food prices,
for example, quite a bit longer before they reached their peak.
So you know, on our inflation forecasts, we would see

(04:24):
inflation heading up to just over three percent quite quickly,
staying there for most of this year, and then just
starting to tack down a little bit once we're getting
into the last quarter of this year.

Speaker 2 (04:36):
How does it compare a domestic situation to what the
global economic consequences will be and how quickly they will
kick in.

Speaker 3 (04:44):
Well, I mean, I think everybody is in the same
boat here. Obviously New Zealand has some relative strengths and
the sense that a lot of our energy uses generated
from renewables in a country, so we don't have the
concerns that for example, Europe has without access to gas.
We don't have perhaps quite the concern about our industry
that Asia has, as given they're so industrialized. But I

(05:07):
think by and large most countries are getting fairly similarly
impacted global growth here for example, I mean, we would
estimate that could easily be downe two point three percent
based off what we've seen already, and would scale up
a little bit more if things stayed close for longer.
The IMFIC group with that assessment, and they came out
this weakness and commentary.

Speaker 2 (05:28):
Actually just on the there's been a lot of talk
over the last week or two about Marsden point is
that those I mean, it's largely academic because we don't
have it, But would that have sort of mollified the
effects of what we're see now?

Speaker 3 (05:41):
I don't think it would have nullified things. And then
the reality is we had still seen the rise and
global energy prices. It might have just taken a little
bit of the edge off the risks around perhaps having
inventories run down quite as quickly as what could otherwise
be the case if we found ourselves in the worst
case scenario where the suppliers weren't prepared to send additional

(06:02):
fuel boats in this direction.

Speaker 2 (06:04):
I use was mollify so that in terms of not
nullified obviously, but would have cushioned it a touch, probably
a touch.

Speaker 3 (06:14):
But I think in the end, you know, the big
impact he has comeing through grobal energy prices, and that's
not really affected by us having one refinery.

Speaker 2 (06:23):
You mentioned the modeling you've done. Have you modeled I
don't know if the does the model predict a likely
outcome of you know, with the geopolitical scene and the
pressure on Trump and the conflict at what's likely to
happen in terms of the decisions that are taken.

Speaker 3 (06:38):
No, I mean, I can't do anything like that. We
have to feed down assumptions for how long this will last.
And I would love to talk to anyone who thinks
they've got a model about how Donald Trump or the
Iranian are going to respond in the current situation. That's
why we have to be very humble about just exactly
how much we know about what's going to happen yet.
I mean, maybe things will blow over in a couple

(06:59):
of weeks and this will just be a bit of
a bad dream, or you know, maybe we're going to
be dealing with more much.

Speaker 2 (07:05):
Yet, what's the time period for you in your mind
where you'll be thinking, Okay, it's still dragging on. We're
two four, six, eight weeks where you start sweating.

Speaker 3 (07:14):
Yeah, I mean I think if we get through to
the middle of April and things haven't improved, or if
they're deteriorated, I think there'll be an increasing squeeze on
inventories and supply chains globally. We haven't really seen any
of that right now. I mean, right now, our film
companies are here to be able to access supplies. You know,
I'm watching the kind of boats that are coming through

(07:35):
from Asia now that we'll planish our stops, and there's
no signs that those are slowing down and turning around.
But you know, in the middle of next month, if
those Asian refiners haven't been able to receive stuff, then
obviously there could be a different situation at that point.

Speaker 2 (07:48):
Because our reserves are not held here. How much of
a problem.

Speaker 3 (07:51):
Is that, Well, a lot of it is held here,
half of it is sitting there in tanks in the country,
and the other half is close enough that you can
probably count it as being here. I guess the challenge
is that all reliant on us receiving a steady supply
of new boats coming every week for example, right, so

(08:12):
it runs down quite quickly, and obviously if the amount
of use that's occurring on a daily basis goes up,
for example, of people start boarding, well then it will
just obviously make things last a little bit less long
than ideally it would be the case.

Speaker 2 (08:27):
Oh well, fingers chriss, Hey Kelly, thanks very much for
your time this happening, I really appreciate it.

Speaker 1 (08:32):
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