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Fire fuels oil fears
James McCullough
29mar05
A LARGE fire in BP's Texas refinery last week has convinced analysts oil prices are heading to $US60 ($A78) a barrel. That would send aviation and freight stocks plummeting this week while resources companies continue to soar.
The fire left 15 people dead. The refinery, one of the largest in the US, accounts for about 30 per cent of the North American gasoline supply.
"We will see more pressure this week on stocks such as Virgin Blue and Qantas because of the rising cost of jet fuel and freight companies will also suffer," one Sydney analyst said at the weekend.
Mining contractors and construction companies have already been hit hard by the diesel fuel price rise, as have taxi companies.
After tumbling from October's then record high of $US56.37 a barrel on the New York spot market, benchmark sweet light crude prices rebounded strongly in recent weeks – up to $US56.80.
And though they then succumbed to some profit-taking, many analysts believe they have not yet seen their peak.
US crude oil futures fell yesterday in Tokyo due to profit-taking after rallying nearly 2 per cent in the previous session in New York.
NYMEX May crude futures were down US35¢ (0.64 per cent) at $US54.49 a barrel in ACCESS electronic trading. In London, May Brent crude was US89¢ higher at $US53.93.
A recent Fat Prophets newsletter forecast oil would be $US60 a barrel this year, which motoring bodies say would mean $1.05 and $1.15 at the petrol pump. "We believe oil is in a primary bull market that will ultimately take the price up towards $US75 a barrel and beyond over the longer term," Fat Prophets said.
Commonwealth Securities analyst David Thurtell expects oil to trade at $US47-$US58 a barrel in coming months.
ABN Amro Morgans analysts have also increased their forecast for oil prices. Luke Smith predicts West Texas Intermediate will average $US48 a barrel in 2005 (previous forecasts were $US40) with an average $US47 a barrel next year.
ABN Amro is forecasting Brent Crude trading at $US45 a barrel in 2005, compared with earlier estimates of $US36 a barrel, and trading at $US44 a barrel next year.
"We expect crude oil prices to stay structurally higher for longer, reflecting healthy underlying global demand, refinery constraints, a weak US dollar and continued underinvestment in new capacity," Mr Smith said.
The oil surge has resulted in another Virgin Blue profit downgrade warning. Transport stocks like Ken Scott Transport, Lindsay Brothers and Toll Holdings have seen their stock prices travel south.
Virgin Blue independent directors have warned that its fiscal 2006 profit will fall 30 per cent if jet fuel prices remain around the current high of $US70 a barrel.
Citigroup analyst Jason Smith said the outlook for Patrick (which now has 50.26 per cent of Virgin Blue) took a turn for the worse after the Virgin Blue warning.
The oil price hike has also added to the woes of struggling mining contractors.
Henry Walker Eltin moved into administration last month and days later Walter Construction tracked a similar path with liabilities exceeding $110 million, after its German parent Walter Bau AG filed for bankruptcy.
However the oil price surge has proved a boon for explorer/producers.
Alan Burns's Hardman Resources, an exploration success story in Mauritania off the coast of West Africa, has seen its shares soar.
Roc Oil, Arc Energy, Beach Petroleum, Mosaic and Oil Search have all watched their prices climb.
Caltex has been one of the biggest beneficiaries of the oil price rise because it is one of the few ASX-listed pure refinery stocks.
Several years ago Caltex was sold down to $1 a share – it closed last week at $15.26 and has traded as high as $16.69 in the past 12 months.
http://www.thecouriermail.news.com.au/common/story_page/0,5936,12682547%255E3122,00.html
HDR
hardman resources limited
