Australia - Oil price confounds

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Please note - Prices quoted are in Aussie Dollars.

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Oil price confounds
08mar00

THE world crude oil price is not only hurting farmer returns - it is confusing the experts.

Last week's Australian Bureau of Agricultural and Resource Economics Outlook conference heard conflicting predictions on where the all-important price was heading. ABARE chief executive Brian Fisher told the conference the price, in the medium term, would fall back to about $33 a barrel.

But Dr Bruce Kasman, head of economic research with United States analyst JP Morgan, was not so confident.

Dr Kasman expected crude oil prices to level out at $41 a barrel.

Both agree that the current spate of high prices, which peaked at $51.80 won't last.

Dr Kasman said these price levels were not in the interests of OPEC members, particularly Saudi Arabia the largest producer.

"Simply, high prices encourage non-members to increase their production," he said.

The current high prices, are the result of OPEC members restricting their supplies.

World oil consumption is estimated at around 78 million barrels a day.

By cutting production by two to three million barrels a day, world oil prices have risen from a low of $16.40 in December 1998 to their current peak.

The weakness of the Australian dollar, which this week was testing the 60 US cent barrier, has exacerbated the situation.

As to the impact on world farm commodities, Dr Kasman said it was a cost that would affect all producers and could not easily be passed on in higher commodity prices.

One sector which may see some benefit is wool which has seen costs rise for synthetic competitors. Prices for oil-based products used in acrylics and polyesters have risen by as much 112 per cent.

Countering this firming in synthetic fibres has been a continuing over-capacity in the Asian polyester market.

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Comment:
One sector which may see some benefit is wool which has seen costs rise for synthetic competitors.
The Australian wool industry has had a rough trot since the early 1990s. About 10,000 farmers are leaving the industry annually. From a peek of about 225,000 farmers fewer than 100,000 remain, & most are only just cutting even. Rising petroleum products does nothing to enhance their chance of survival.

Regards from OZ

-- Pieter (zaadz@icisp.net.au), March 09, 2000


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