The 2008 “Price Spike”

  The 2008 “Price Spike”

Notes


This chart shows the relationship between the international price of oil and the price of petrol in New Zealand over the past 2 years. (Oil is orange and petrol is blue). The left side of the graph is Dubai Crude* on the international energy market, in $US dollars per barrel. The right side of the graph is the price of regular petrol (in NZ cents per litre) in main centres.

 
The top price of nearly $2.13 per litre in early July 2008 represented a price of around $US135 per barrel. Looking at the graph, you can see a slight lag between oil and petrol prices: typically our local petrol prices take a few days to respond to movements in the international price of oil.   
 
There are also periods when the graphs don’t correspond: this is caused by differences in the exchange rate between the New Zealand and US dollars; you can clearly see this effect in January to June 2009, when the $NZ fell from $US 0.559 to $US 0.498 quite sharply, then returned to $US 0.64 by mid-June. 
 

On balance, it appears that the 2008 price spike was caused by a speculative bubble; but the speculation was on top of a long term trend of rising prices caused by increasing demand and “inelastic” supply (with many oil fields starting to decline, supply cannot rise to meet rising demand).   

 
Source:  Peterson Institute for International Economics: Policy Brief 09-19
 
Graph prepared at Manukau City Council, using data from the NZ Ministry of Economic Development 
 
* New Zealand petrol is mostly refined from Dubai Crude.