

Podcast - Full Program Podcast - Individual Items
Not sure what this is? Find out more

The AM 'Three Men in a Car' Tour


The World TodayThe World Today
Correspondents ReportCorrespondents Report

More Current Affairs:




Stockmarket uncertainty sees oil prices soar


AM - Friday, 14 July , 2006  08:27:00

Reporter: Andrew Geoghegan

TONY EASTLEY: The latest Middle East crisis has jolted stockmarkets in the US and Europe, where they've lost more than one and a half per cent in value.

And the uncertainty has sent the price of oil to a record high. It traded in New York overnight for more than $US 77 a barrel.

Frank Verrastro is the Director of the Centre for Strategic and International Studies energy program in Washington.

He's been telling Finance Correspondent Andrew Geoghegan that if the latest conflict is not resolved quickly, then it's likely oil will continue to go up.

FRANK VERRASTRO: I think just the real concern is not so much a threat to existing supplies, is that there could be a spillover effect if hostilities move up from where they are, and when you add the situation in Iran, Iraq and Korea, there's greater outside potential in the near term than downside potential. That's what's moving the markets.

ANDREW GEOGHEGAN: All right, so if the conflict there worsens considerably, you would expect then obviously the price would keep rising?


ANDREW GEOGHEGAN: To what extent?

FRANK VERRASTRO: Well, it would certainly stay where it is; there's no reason for it to abate until there's some resolution.

ANDREW GEOGHEGAN: And there are also problems with supply in Nigeria, Africa's largest oil producer, militants there have severed two of its major oil pipelines.

FRANK VERRASTRO: Yeah, well the situation is that even if you go back as recently as a year, we're, I would argue, a million barrels a year worse off than we were a year ago at this time, and part of the reason is, is we've lost a couple of hundred thousand barrels a day of production from Nigeria.

We're still off in the United States about 300,000 barrels a day from loss of production in the Gulf of Mexico, as a result of Hurricanes Katrina and Rita, and now we're in the new 2006 hurricane season, and Iraq is still off about half a million barrels a day.

So when you start adding these numbers up, and you look at the available spare capacity in the world, even though it's probably on the order of a million and half, a little more than that, that the loss of a significant producer like Iran at this point, you couldn't make up for it totally out of increased production, it would require a draw-down of strategic stock.

TONY EASTLEY: Frank Verrastro, the director of the Centre for Strategic and International Studies energy program in Washington, speaking there with AM's Andrew Geoghegan.