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<DIV><FONT size=2><FONT face=Arial><FONT size=4><STRONG>Oil soars, markets
plunge as crisis deepens</HEADLINE></STRONG></FONT></FONT>
<DIV class=adSpot-toolbox id=adSpot-toolbox-top><FONT face=Arial>Richard
Webb</BYLINE><BR><DATE>July 16, 2006</DATE><BR></FONT></DIV><!--articleDetails-->
<DIV class=article-links id=idrelatedcoverage-top>
<H4 class=islandad id=adSpotIsland><FONT face=Arial>OIL hit a record high, gold
jumped sharply and sharemarkets tumbled as fighting between Israel and Hezbollah
guerillas in Lebanon intensified.</FONT></H4></DIV>
<P><FONT face=Arial>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.</FONT></P>
<P><FONT face=Arial>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.</FONT></P>
<P><FONT face=Arial>Crude oil closed at $US77.03 a barrel in New York yesterday
after hitting a record $US77.75 during the session.</FONT></P>
<P align=left><FONT face=Arial><FONT color=#ff0000>Market watchers said oil was
heading to $US80 a barrel,</FONT> <FONT color=#ff0000>and possibly as high as
$US100, if the fighting continued.</FONT></FONT></P>
<P><FONT face=Arial>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.</FONT></P>
<P><FONT face=Arial>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.</FONT></P>
<P><FONT face=Arial>"And it's also when we get hurricanes through the Gulf of
Mexico, where most of the US oil facilities are located.</FONT></P>
<P><FONT face=Arial>"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."</FONT></P>
<P><FONT face=Arial>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.</FONT></P>
<P><FONT face=Arial>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.</FONT></P>
<P><FONT face=Arial>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.</FONT></P>
<P><FONT face=Arial>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.</FONT></P>
<P><FONT face=Arial>ABN AMRO Morgans senior adviser Simon Bond expected
sharemarkets to steady if tensions showed signs of cooling.</FONT></P>
<P><FONT face=Arial>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."</FONT></P>
<P><FONT face=Arial>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.</FONT></P>
<P><FONT face=Arial>"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.</FONT></P>
<P><FONT face=Arial>He called on the Government to ease taxes on
petrol.</FONT></P>
<P><FONT face=Arial>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.</FONT></P>
<P><FONT face=Arial>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.</FONT></P><A
href="mailto:jgoldie@snowy.net.au"></A></FONT></DIV></BODY></HTML>