Pump prices of $2.50 per litre of fuel are on the horizon as global oil prices surge to more than $US130 ($NZ167.30) and the New Zealand dollar further weakens.
New Zealand motorists have barely taken breath from urban and rural prices settling around the $2 per litre mark during the past fortnight before the price of West Texas crude and Brent crude from the North Sea leapt about $US5, to $US134 and $US132 respectively on Wednesday trading.
United States stockpiles of crude oil, which cost about $20 per barrel in 2002, had surprisingly fallen and sparked the latest price increase this week.
The high New Zealand dollar in recent months has been providing a 15c-20c per-litre buffer against the spiralling cost of oil - up almost 35% this year already - but that buffer is now being eroded.
Westpac chief economist Brendan O'Donovan said with the global credit and equity markets remaining in a downturn, more than $US200 billion in investor funds had been redirected into the more profitable commodity markets.
"Since the fourth quarter of 2004 the global supply of oil has virtually flatlined.
China alone accounts for 35% of the additional demand," he said.
Analysts are already predicting crude prices rising to a range of $US150-$US200 and the immediate US pump price headed for a record $4 per gallon.
There has been increasing pressure for the Middle Eastern Organisation for Petroleum Exporting Countries (Opec) to increase supply, which has in turn said that it is investor speculation now driving prices.
Mr O'Donovan said while Opec had recently agreed to increase oil supplies by 13,000 barrels per day, that was a minor concession given daily global oil supplies were 85 million barrels per day.
He said a sinking kiwi dollar could result in fuel prices of up to $2.50 per litre, having based his calculations on crude prices in Dubai, where crude was bought then refined in Singapore for distribution to New Zealand.
"Given Asian demand over the next five years is expected to be phenomenal, supply cannot keep pace with demand," Mr O'Donovan said yesterday.
Stockpiles of crude in the US, the world's big-gest energy consumer, fell 5.4 million barrels last week, Reuters reports, against expectations a stockpile would be built.
"This report gives the market every reason to rally," Rob Kurzatkowski, an analyst at optionsXpress in Chicago, said.
The fall in weekly inventories intensified concerns that supply problems will persist for years as production falls short of growth in demand.
Oil for delivery in December, 2016, rose above $142 a barrel on Wednesday - making it the loftiest contract on the futures curve.
Opec's biggest producer, Saudi Arabia, said it has raised production by 300,000 barrels per day, but only to offset production problems from other members of the cartel.
