[Peakoil] from today's Age

[Jenny Goldie]

Oil soars, markets plunge as crisis deepens
Richard Webb
July 16, 2006

OIL hit a record high, gold jumped sharply and sharemarkets tumbled as fighting between Israel and Hezbollah guerillas in Lebanon intensified.
Shares on the Australian Stock Exchange are expected to drop again tomorrow. Experts tip a 30-point fall, following Friday's 118.5-point (2.3 per cent) rout. They do not rule out further big falls as violence spreads.

The surging price of crude oil is expected to drive petrol to $1.50 a litre in Melbourne and up to $1.60 in regional areas.

Crude oil closed at $US77.03 a barrel in New York yesterday after hitting a record $US77.75 during the session.

Market watchers said oil was heading to $US80 a barrel, and possibly as high as $US100, if the fighting continued.

RACV government and corporate relations manager David Cumming said he did not expect petrol to hit $1.50 this week, but it could by the end of the month or next month.

AMP Capital Investors chief economist Shane Oliver said the fighting near the source of much of the world's crude oil could not have come at a worse time. "We are coming into the strongest time of year for global oil consumption, with the northern hemisphere summer driving season," he said.

"And it's also when we get hurricanes through the Gulf of Mexico, where most of the US oil facilities are located.

"While there are no real issues about oil supply as yet - there's not much oil in Lebanon - the fear is that this latest outbreak could escalate into an Arab-Israeli conflict like that which caused the oil crisis in the early 1970s."

Dr Oliver said Saudi Arabia, the world's largest oil producer, then stopped shipments to punish the US for backing Israel in its fight with Egypt.

As a sign of a rising concern among investors, gold was heavily bought on Friday night. Gold is traditionally an investment haven in times of turmoil. The spot price jumped $US13.63 an ounce (2.1 per cent) to $US665.32 in New York, finishing at a six-week high.

Copper and nickel also led a charge in metal prices, rising 2 per cent and 1.4 per cent respectively in London, although this was as much to do with a sharp decline in stockpiles as anything else.

Sharemarkets reacted badly to the Middle East tensions, although Australia led the way on Friday. In the US, the Dow fell 106.9 points, or 1 per cent, to 10,739.3. Falls of 1.5 per cent and 1.9 per cent were experienced in France and Germany.

ABN AMRO Morgans senior adviser Simon Bond expected sharemarkets to steady if tensions showed signs of cooling.

But economists had been underestimating the impact of high petrol prices on economic activity, he said. "A lot of people I've spoken to who own motels and caravan parks are saying it is very quiet compared with a year ago, while Harvey Norman's sales figures last week were down, and Harvey Norman is an excellent indicator on retail spending."

Mr Cumming said the average petrol price in Melbourne was 137.2 cents a litre yesterday, down from the recent high of 143.9 cents and the record high of 145.9 cents the week before. But $1.50 a litre was coming.

"While I don't expect it this week, $1.50 a litre is on its way, and we have got to be getting close to where the petrol price really starts to cause some serious economic damage," he said.

He called on the Government to ease taxes on petrol.

Of the 137.2 cents a litre for unleaded, 50.2 cents was tax. Mr Cumming said the petrol price could be cut by 3.4 cents a litre if the GST was calculated before excise was added.

It was effectively a tax on tax and federal and state governments had to act before the petrol price caused serious economic damage, he said.
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