MEDIA RELEASE
August 2005
Media Release
ENERGY STOCKS SOAR ON OIL SUPPLY PANIC
The Courier Mail, Wednesday 10 August 2005
ENERGY stocks continued their upward march yesterday after crude oil jumped to a record $US64 a barrel amid fears of more terrorist attacks in the world's biggest oil exporter Saudi Arabia and a possible fuel shortage in the US.
As the US shut its diplomatic missions in the Saudi cities of Riyadh, Jeddah and Dhahran for two days in response to threats, Australia and Britain also warned that terrorists would soon strike in the kingdom.
"It's the kind of report that, given the current market conditions, is going to lead to an increase in the price," Global Insight analyst Simon Wardell said yesterday.
The warnings follow King Fahd's death on August 1, which has increased speculation about the stability of supplies from the region which accounts for 25 per cent of the world's proved oil reserves.
"There's a moment of weakness here with the Saudi changing of the guard," said Don Moreton senior vice-president of energy trading at US institution Advest.
"This could present itself as an opportunity to challenge the Saudi political structure." Fahd's successor, Crown Prince Abdullah, has been in charge of day-to-day affairs since the king suffered a stroke in 1995.
Oil for September delivery surged $US1.63, or 2.6 per cent, to close at a record $US63.94 a barrel on the New York Mercantile Exchange after hitting $US64 during intraday trade.
In Singapore yesterday, benchmark light, sweet crude reached a high of $US64.27. Woodside, which unveiled plans for a new "multibillion- dollar" LNG project in Western Australia on Monday, jumped another 4.6 per cent or $1.48 to close at a new record high of $33.40. Oil Search gained 10¢ to $3.47, Santos 33¢ to $11.38, Caltex 32¢ to $17.71 and Roc Oil 1¢ to $2.44.
Other resource stocks with exposure to oil were also strong, with BHP Billiton up 42¢ to $20.34, but transport sector companies slumped as investors focused on the continuing squeeze rising oil prices would place on margins. Patrick Corp, which controls low-cost carrier Virgin Blue Holdings, fell 9¢ or 2 per cent, to $5.91 while Virgin Blue slid 1¢ to $1.69.
Freight sector leader Toll Holdings dropped 22¢, or 1.7 per cent, to $13.58.
News that OPEC's second largest producer Iran had resumed its nuclear program, despite European Union warnings of possible UN sanctions, also fuelled further concerns over oil supplies. Taking into account the effect of inflation, however, oil prices today are well below prices in the 1970s and the all-time record high hit in 1980 during the Iran hostage crisis when the oil price exceeded $US91 a barrel.
Wilson HTM resources analyst Andrew Pedler said a slowdown in demand would normally have been expected at this level of pricing.
"But so far we haven't seen it and the latest OECD figures are pointing to an improvement in growth," he said. "So when you add in continued strong growth from China it lends credibility to the stronger for longer argument on the outlook for oil prices."
Mr Pedler also noted that OPEC no longer had the ability to influence prices by bringing on additional production.
Bowser prices for unleaded petrol are now ranging from an average 113¢ per litre (cpl) in Perth to 122cpl in Hobart with Queenslanders paying about 116cpl amid expectations of further price rises to about 125cpl.
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