Ryan Bridge: The oil price danger zone for inflation

If this is still going on in two or three weeks, lots of countries, including ours, will start to feel the pinch. 

Brent Crude Futures topped out at $85 a barrel overnight, the highest price since 2024.

JP Morgan says it could hit, worst-case, $120. 

The Iraqis are now pulling back production because of the Hormuz logjam. 

Refineries in Asia are, according to Bloomberg, thinking about cutting production by 20-30% for the same reason.

You've got tankers backing up and unable to port. 

All this stuff means delays. 

Our economy is quite dependant on oil and gas. It's a common misconception that we aren't.

Because we generate 80% of energy as renewables, or thereabouts, people often think that's the same as use. In fact, about 60% of our energy comes from fossil fuels. 

Kelly Eckhold from Westpac told me yesterday it's likely petrol prices will go up for us. As of yesterday, he estimated 8 cents a litre at the pump within a week or two. 

Oil prices are lower by comparison of late but that $100 to $120 barrel JP Morgan scenario is key. That's the point at which our inflation forecasts would have to change. 

And we know that that means, prices going up. 

Think about how much of what you do in a day, driving a car, using a plastic pen, powering your business, trucks getting food to supermarkets, uses oil. 

And once you get those prices going up, you get general prices going up. 

And then you get the Reserve Bank's back up. And then what? Do consumers pull back spending again?

Is this event the hill our recovery dies on? 

Let's hope not. It's early days. Scenarios are exactly that. A lot of TBC. 

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Episode Transcript

Speaker 1 (00:00):
The most common question I'm getting asked at the moment

(00:02):
is with the Middle East, when does it start to
affect us here in New Zealand. And I'm talking about
their economy. If it's still going in two or three weeks,
then lots of countries, including ours, will start to feel
the pinch. This is not my words, this is the economist.
So we have about two or three weeks of stocks
of oil in New Zealand. I know it's not a
hell of a lot, is it, Although that's more than
what we did have. This government actually changed the requirement.

(00:24):
Brent crude futures topped out at eighty five dollars a
barrel overnight. That's the highest it's been in about eighteen months.
JP Morgan. As I mentioned earlier, they say we could
hit one hundred and twenty. The Iraqis are now pulling
back on their production refineries in Asia Overnight, they, according
to Bloomberg, thinking about cutting production by twenty or thirty
percent because of the humus log jam. You've got tankers

(00:49):
backed up, unable to port all this stuff means delays.
And our economy runs on oil and gas, it runs
on fossil fuels. It's a common misconception that we don't
in New Zealand because we narrate so much renewable energy.
But that's generation eighty percent all thereabouts. People often think
that's the same as use. In fact, about sixty percent

(01:10):
of our energy supply, of what we use day to day,
comes from fossil fuels. Did you know that? Kelly Echold
from Westpac told me yesterday it's likely petrol prices will
go up for us as of yesterday. He estimated eight
cents a liter at the pump within a week or two. Now,
oil prices at the moment are actually, by comparison to
recent years, quite low. But your one hundred to one

(01:34):
hundred and twenty dollars barrel forecast is key. That's the
point at which our inflation forecasts would have to change,
he reckons. And we know what that means, don't we?
Price is going up. Think about how much of what
you do in a day driving a car, using a
plastic pen, powering your business trucks, getting food to supermarkets.
Think about how much that uses oil. We're dependent And

(01:57):
once you get those prices going up, you get general
prices going up, and then you get the reserve banks
back up, and then what is this the event the
hell that our recovery dies on. Please don't freak out,
don't freak out. We're not there yet. We're not there yet.
National certainly will be hoping not. But the ingredients are there,

(02:18):
and the language you have to say coming out of
the White House over the last twenty four hours isn't
exactly helping to allay our fears, is it. For more
from Early Edition with Ryan Bridge. Listen live to News
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