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Cullen Assumes NZ Will Escape Oil Prices Fallout

14 November 2007

Cullen Assumes NZ Will Escape Fallout From Rising Oil Prices

Green Party Co-Leader Jeanette Fitzsimons today criticised the lack of concern being shown by Finance Minister Michael Cullen about the chronic inability of Treasury, the Reserve Bank and MED to accurately forecast the price of oil, or even whether it is likely to rise or fall.

"While oil prices have been soaring inexorably over the last four years Treasury, the Reserve Bank and the MED have just as consistently been predicting that oil prices have reached a plateau, or will soon fall. In similar vein, Dr Cullen has expressed his confidence in the House this week that current oil prices will soon decline, just as they did after the 1970s oil shocks ," Ms Fitzsimons says.

"Today's oil prices bear little or no relation to solutions possible in the 1970s. OPEC is no longer dominated by a Saudi Arabia willing and able to meet the low cost energy needs of the West by boosting production. Increasingly, the price of oil is being driven by production problems in the large traditional fields, by the extraction costs due to political uncertainty and weather challenges posed by new fields and by the inexorable rise in demand from developing countries such as China and India.

"Dr Cullen needs to stop looking in the rear view mirror for re-assurance. There is a peak oil crisis unfolding right in front of him. To plan for it properly, he needs to address the failings in his key Government forecasting agencies. If the Reserve Bank is so regularly wrong about the price of oil, how can it properly judge the likely level of inflation - and choose where to properly pitch its responses?

"When Treasury also can't even come close to accurately forecasting oil prices, we have to ask what contribution this has made to its inability to correctly forecast the size of the surplus. If the true price of oil was being incorporated into transport planning, it is also unlikely that the recent massive investments in new large roads would have been sanctioned. For graphs of Government oil price forecasts compared to reality see

"Both Government and the private sector look for and need certainty on which to base their planning. The entrenched inability of key Government agencies to forecast the true price of oil has implications far beyond what Dr Cullen has so far been prepared to concede - in the House, he was only willing to admit that monetary policy may have been looser than it should have been thanks to inaccurate oil price forecasts.

"New Zealand is sleepwalking into peak oil - with little acceptance or planning for the social and economic changes it will entail. Dr Cullen has to instruct his key forecasting agencies to jettison their optimistic assumptions about low and declining oil prices, so that Government can begin to plan realistically for the combined consequences of peak oil and climate change," Ms Fitzsimons says.


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