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Oil prices continue to rise -

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Oil prices continue to rise

AM - Friday, 15 October , 2004 08:20:00

Reporter: Tony Eastley

TONY EASTLEY: Oil prices are continuing to rise, with some energy traders predicting it could hit
US$70 to US$80 a barrel in the not too distant future. Overnight crude oil pushed towards US$55 a
barrel.

Treasurer Peter Costello has already indicated that the price of oil might crimp Australia's
economy.

But what about the United States?

With an election just weeks away and Americans some of the biggest consumers of oil and petroleum
products, what will the ramifications be there?

To discuss this, I'm joined in the studio by our finance reporter, Karen Percy.

Karen, how are oil prices playing out in the US Presidential election campaign?

KAREN PERCY: Well, it really hasn't been the kind of hot button issue that certainly you might have
expected in a nation that's very dependent on cars, about to head into the winter where the
preferred method of heating is by burning oil.

Now, John Kerry, the Democrat candidate in this latest debate, did briefly talk about the rise in
petrol prices. He says they're up about 40 per cent since George W. Bush took over some four years
ago and how Americans are essentially poorer as a result.

The Northern summer is over so Americans won't be driving as much as they do usually, so despite
the fact that gasoline is getting close to US$2 a barrel, that's a psychological barrier, it's not
as big a deal.

Heating oil is another matter and we did get a report overnight that supply levels are down and
there are forecasts that heating costs in some areas could go up as much as 25 per cent. So it's
definitely something that whoever wins the elections is certainly going to have to watch, as much
because of its effect on the broader economy.

TONY EASTLEY: Are we really looking at US$70 or US$80 dollars a barrel?

KAREN PERCY: Well, it certainly seems extraordinarily high, but let's not forget six months ago
people were scoffing at the idea of oil at US$50 a barrel and here we are overnight, crude hitting
US$54.76 a barrel, so...

There are still worries about the secure delivery of supplies from Iraq, Nigeria, but it would take
extreme prices, according to some, for the effects to really be felt in the US.

Here's energy trader Nauman Barakat, speaking from New York this morning.

NAUMAN BARAKAT: My suspicion is that we will have to get to prices that are probably close to
$70-$80, in US dollars.

KAREN PERCY: And what do you rate the chances of getting to $70 or $80?

NAUMAN BARAKAT: I'm one of the biggest (inaudible) on this street here, but I think the probability
of us reaching $70 is a lot better than 50-50.

TONY EASTLEY: New York Energy Trader, Nauman Barakat speaking there.

Well, Karen Percy, Treasurer Peter Costello has already indicated that oil prices might affect
growth here in Australia. What might it mean globally?

KAREN PERCY: Well, let's face it. When we talk global, we really mean what does it mean for the
United States, because that economy is so pivotal to the global situation and more figures released
there overnight show that increased demand for oil imports, and the higher price of oil, were major
factors in the trade deficit blowing out in August to US$54 billion. That's the second highest on
record.

Now, if that dampens consumer demand, and we've got to figure that might because if people have to
spend more money on heating bills in the US or here in filling up the tank of their car, the less
money they've got to spend on other things. And we know that consumers account for about two thirds
of all economic activity. The consequences are indeed major.

But it will be interesting - tonight we'll actually get probably the best indication yet of where
things really are at when that market mover Allen Greenspan, Chairman of the US Central Bank, will
look at this very issue in a speech, and if he's worried, then the world will be worried.

TONY EASTLEY: Finance Reporter Karen Percy, thank you.