Drone strikes on a critical Saudi Arabian oil pipeline, a shuttered Strait of Hormuz and sustained Ukrainian attacks on Russian refineries are fuelling a deepening global diesel shortage, with New Zealand pump prices set to rise as a result.
The average price of 91 has already jumped 15 cents a litre over the past 28 days to $3.11, while diesel is up more than 14 cents to $2.79.
Attacks targeting oil sites and trading routes overseas are affecting supply. (Source: 1News)
Three conflicts, one oil crisis
AA principal policy adviser Terry Collins said there were three converging events constraining supply.
"One is the shutting off of the East-West pipeline by the Saudis – that was an alternative to the Strait of Hormuz, which is shut," he told 1News.
"Iranian oil is not getting through – traditionally it went to China or India."
The third factor, he said, was Ukraine's continued strikes on Russian oil infrastructure, "to the point where President Trump has asked the Ukrainians to stop attacking Russian diesel facilities".
Collins said Ukraine had little incentive to ease off before the US midterm elections in November.
"I can't see any relief coming to us until around about that time, and maybe even out to Christmas."
Saudi Arabia shut down the pipeline after it was attacked the previous day, with the Ministry of Energy describing the closure as "a precautionary measure". (Source: Supplied)
Saudi Arabia closed its East-West oil pipeline after it was struck by drones as Yemen's Houthi rebels continued to advance, giving them greater power to disrupt shipping through the Red Sea's Bab al-Mandab Strait – the gateway for around 7% of global oil.
US President Donald Trump pointed to Ukraine's strikes on Russian oil sites as a driver of the shortage, calling on Ukrainian President Volodymyr Zelensky to stop targeting diesel infrastructure.
"Let him go after targets, but not diesel fuel, because he's causing a shortage of diesel fuel," Trump said.
"This isn't done by the Middle East, this is done by what's happening with Russia and Ukraine."
More price rises coming — but not April's record highs
Collins said crude oil was trading at around US$107 to $108 a barrel, and motorists had already been hit with sharp increases last week.
"There'll be more price jumps because those price increases were only for previous events."
However, he did not expect prices to reach the highs recorded in April and May, when diesel overtook petrol and reached about $3.80 a litre in some places, with petrol around $3.50.
The uncertainty around the initial attack isn't there. We've had time to adjust some of the pipelines, the logistics have shifted to allow for that - but there's still a real tightness in the market."
Price pressure came down to four factors beyond New Zealand's control: crude prices, refining costs – known as the crack spread – shipping costs, and a weaker dollar.
"We don't have a supply problem, we have a price problem," he said, pointing to additional storage capacity at Marsden Point.
"A lot of that is being driven by the refineries and the additional revenue they're getting from the shortage of oil and the cracking spread."
Collins said the sustained high prices could accelerate New Zealand's shift toward electric vehicles.
"The unintended consequence of this is we might have a cleaner fleet in the future as consumers seriously consider buying battery electric vehicles and plug-in hybrids."
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