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Oil price soars to record high -

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Oil price soars to record high

The World Today - Thursday, 13 March , 2008 12:18:00

Reporter: Eleanor Hall

ELEANOR HALL: It broke through the $US100 a barrel mark only last month. Now the international oil
price has hit a new high of $US110 a barrel.

So how high can it go and what will higher fuel prices mean for the world economy and for
Australia?

Oil analyst Stephen Bartrop from Stock Resource joins us now.

So Stephen Bartrop, is this new record just a spike or a sign that higher oil prices are here to
stay?

STEPHEN BARTROP: Look, it's interesting Eleanor. I mean there's certainly parts of the market that
are calling for the oil price to move up into that $US150 to $US200 per barrel level. But our
belief is that essentially the fundamentals aren't there to support it.

I think if we stand back and look at the issues at hand, what we're seeing is a major impact of the
US dollar's continuing slide, and really we're seeing investment in oil stemming from fund
activity, and a bit like gold, is offering a hedge against that falling US dollar.

ELEANOR HALL: So we're seeing fear rather than fundamentals driving the higher oil price?

STEPHEN BARTROP: Certainly Eleanor. If we stand back and look at supplies, we can see the crude
supplies have in fact increased by 10.2 per cent since early January this year. In fact, the US
energy department, Energy Information Administration, is reporting increasing supplies and falling
demand, which of course should bode well for lower oil prices...

ELEANOR HALL: Why isn't that having a stabilising effect?

STEPHEN BARTROP: Well, I think it really comes back again to this US dollar issue. You know, of
course the administration reported that supplies jumped 6.2 million barrels last week and that is,
you know, reportedly three times more than analysts forecast.

So if you look at that the oil price eases off. But then on those dips we're finding that fund
buying is coming in and pushing that oil price up, particularly as a hedge against the US dollar
with, you know, some of the recent lows against the euro.

ELEANOR HALL: So how high do you think the oil price could go?

STEPHEN BARTROP: Look, our call would be very much that, as all the new bad news regarding US
recessionary issues and so forth come out and we start to feel some, or we start to see some
stabilisation of that US dollar, perhaps you know the middle of this year or towards the end of
this year, we will start to see some of these fundamentals in terms of increased supplies, weaker
demand coming through, from particularly through the US and the weaker economy will start to push
that oil price back down. And we would be calling for a level around perhaps $US80 a barrel by the
end of 2008.

ELEANOR HALL: Does that depend a lot on OPEC and its production? Because it's not increasing
production and some people are suggesting that there may even be a cut in production.

STEPHEN BARTROP: That's right. I mean, certainly OPEC has stated that it's going to maintain
current production levels, but it has recognised the impact on demand with the weakening US
economy. And of course we're currently in a seasonally lower demand period in the northern
hemisphere.

With that maintenance of production, it is likely to again, when those fundamentals start to come
through, it must start to push the oil price down. So we really need to see a shift in the attitude
of the financial markets and then we'll start to see these fundamentals flowing through.

ELEANOR HALL: Until then, how worrying is this higher oil price for the Australian economy?

STEPHEN BARTROP: Well certainly it has an inflationary pressure effect. But remember of course, you
know, like other US dollar denominated, globally traded commodities, increasing interest rates and
softening of the Australia dan (phonetic), will really have almost zero impact of the strength of
global economies like China and other emerging economies in terms of keeping those commodity prices
high and providing that sort of demand.

So, it is an issue for Australia but hopefully that all oil price will ease up later in the year.

ELEANOR HALL: Stephen Bartrop, thanks for joining us.

STEPHEN BARTROP: Thank you Eleanor.

ELEANOR HALL: That's Stephen Bartrop from Stock Resource.