Oil price fall may be slow to kick in

Reserve Bank governor Alan Bollard’s prediction that oil prices have peaked and will fall should be right, but it may take longer than he expects.

NEW ZEALAND – Oil hit $US75 a barrel in April but fell to less than $US70 this week. The Reserve Bank is assuming another $US20 fall in the next two years. Petrol at the pump should dip 13 cents to $1.58 a litre by March, it says.

With a high price there is a huge incentive to dig up more oil, use up inventories, build more refineries, and pump the stuff. As new supplies come on, demand will be satisfied and prices should fall.

That has happened in the past, but some in the oil industry think the picture now is not so clear.

American oil expert Matthew Simmons argues that oil is running out faster than expected, inventories have been run down but demand keeps rising. He bets oil will hit $US200 a barrel by 2010.

Stuff