– Oil Crisis...is the world about to be shocked

Crude oil price could top $US75, says report
Liam Walsh

OIL prices could jump above $US75 in 18 months if current pressures continue, according to a new research report.

Demand from US consumers and Asian industry along with supply problems could contribute to the rise, say report authors Fat Prophets.
 

Recent highs have been linked to industrial growth, political uncertainty, supply problems and refining capacity difficulties.

But others argue that current escalating prices are spikes with one expert likening them to a "pimple on the butt of an elephant".

Prices eased yesterday with New York Mercantile Exchange crude for August delivery trading below $US58.20 in Asia, dropping from record highs earlier in the week of $US60.95.

Recent highs have been linked to industrial growth, political uncertainty, supply problems and refining capacity difficulties.

Rising oil prices could affect different sectors of Australia's economy by dampening shoppers' willingness to spend while increasing costs of production of goods such as plastics.

Fat Prophets yesterday said upward pressure on oil showed "no immediate sign of abating".

"The latest catalyst appears to be Iran and the newly elected Government's reluctance to accept foreign investment towards improving key infrastructure to increase oil production," Fat Prophets co-founder Angus Geddes said.

Another problem was that production increases were failing to quell appetite for oil, he said. Mr Geddes said this was because the oil was of low quality, containing high amounts of sulphur, which was difficult and expensive to refine.

"Some of the refineries just won't even take it," Mr Geddes said.

Some consolidation in prices is possible in the near future but any pause would be temporary with prices climbing above $US75, he said.

But JP Morgan economist Jarrod Kerr said levels could remain around $US60 for the next one to three months before falling toward $US50.

Fears about refining capacity was a problem driving current prices, he said.

Some older refineries could not quickly switch between fuel types such as petrol to diesel, he said.

This problem was linked to a lack of investment.

Mr Kerr predicted prices could fall to the high $US40 mark by the end of 2006.

Joe Bosworth, a director of Perth-based energy adviser Dover Consultants, said anomalies had hit in the 1970s and 1980s.

He said that Tuesday's rise was another spike like a "pimple on the butt of an elephant".

"If you look at those (70s and 80s) anomalies in light of today's thing you would end up believing that today's situation is only an anomaly that would correct itself in due course," he said.

But Mr Bosworth said the current prices could affect economic sectors ranging from farmers to food packaging to car selection to metals production.

"We are dumping major amounts of Australian dollars overseas," he said, referring to payments for importing oil.

Plastics used in food packaging would become more expensive because of the use of oil.

"It's going to affect the whole food chain," he said.

The current prices could also in turn push up other energy costs which in turn would affect production of metals such as aluminium, he said.

Business with tight margins yet high energy costs might have to lift consumer prices. This was despite the potential of losing a competitive edge, he said.

"In many cases they have little choice," Mr Bosworth said.

JP Morgan's Mr Kerr said higher prices would impact on consumers.

Retailers could also suffer a second setback with costs such as transport rising, he said.

Food and beverage makers could be affected but they had higher margins than retailers, he said.
 

Source	back to top	back to Headline Index
home	Word from main	back to Oil Crisis Word from