Slattsnews

Generally, the advice from this source, the Commonwealth Bank of Australia, is sound. The author shares an unusual surname with the straightest bloke I’ve ever known, and he was a leftie. Gawdknows what Brian Smiddy would make of the middle class dregs that control his beloved party now.
Point of view – oil prices
The price of oil has reached record highs, in nominal terms, in recent days. For Australian oil producers, the rise in the US dollar price of oil has been partially offset by a stronger Australian dollar in 2004. 8090100110120130140150160Jun-03Sep-03Dec-03Mar-04Jun-04Common baseWPLSTOWTI In the six months to 30 June 2004, Woodside reported an average realised oil price of A$47.65. This is only around A$3.50 more than it received in the second half of 2002 and the first half of 2003. The performance of Woodside and Santos shares are compared to the price of West Texas Intermediate (WTI) in the chart. Over the year, Woodside’s price has been more correlated with the oil price. A fire at Santos’ Moomba processing facility affected the stock in early 2004. We expect oil prices to remain high during 2004 and 2005. However, oil is not expected to remain at these levels into the long term. Commonwealth Bank Commodities Strategist David Thurtell expects oil to trend down to US$32 per barrel in early 2006. A recent report by Bear Stearns argued that current oil prices are not justified by the economic fundamentals of the oil market. It stated that the price of oil is $18 to $22 dollars above the level justified by supply and demand. The current price includes a large terrorism premium and has been pushed higher by speculators. Bear Stearns argues that: − OPEC has 2.1 million barrels a day of spare capacity; − US crude inventories have risen 9.4% since January; − No terrorist act has resulted in the loss of a meaningful quantity of production and OECD government reserves exceed 1.4 billion barrels (2 million barrels a day for two years); − Any Russian outage from Yukos’ problems is unlikely to be for long; and − major oil companies have found more oil than they have produced in 8 of the last 10 years. In addition, Venezuelan production — which has fallen every year since 2000 — grew strongly in early 2004. Offsetting this, problems with Japanese nuclear reactors means that country will burn more oil.
Michael Smiddy
Senior Utilities Analyst