Falling $A keeps oil prices on the rise

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Falling $A keeps oil prices on the rise

By JOSH GORDON ECONOMICS CORRESPONDENT CANBERRA Wednesday 18 October 2000

If motorists are already feeling the pinch from high petrol prices, experts warn prices could be forced higher by the falling Australian dollar, tensions in the Middle East and rising international demand for oil.

In what has become an almost daily occurrence, the Australian dollar yesterday hit another record low of 52.12 US cents - one factor that could push pump prices back above $1 in the next few weeks.

Because oil is bought and sold in US dollars, when the Australian dollar falls in value it costs more to buy oil on the world market and the cost is passed on to motorists. During the past 12 months, world oil prices have more than doubled in US dollar terms, but in Australian dollars prices have tripled.

But the falling dollar is not the only factor. Tensions in the Middle East could also push prices higher in coming weeks. Oil analysts said that three weeks of violence had sparked concerns that Arab oil producers could cut off supply in support of the Palestinians. This triggered a 13 per cent jump in world oil prices last week as buyers rushed to increase stocks in expectation of more trouble.

Shell senior adviser Vincent Cosgrove predicted the falling dollar and the high world oil price would push pump prices up by about three cents a litre by the end of the week.

According to economists, high petrol prices will also boost inflation by raising production and transport costs. In turn, this could hurt home buyers by placing pressure on the Reserve Bank to lift interest rates at its next board meeting early next month.

High petrol prices have also sparked claims from the Federal Opposition and others that the Federal Government will receive a budget windfall because of the increased tax take.

Prime Minister John Howard said yesterday that he did not want to comment on the impact of the petrol price on the budget before its mid-year review, which is due before Christmas.

"People are running around saying there's a windfall for the budget - it's too early to make a judgment about all of that," Mr Howard said.

Another factor that could push pump prices higher is skyrocketing world demand.

Analysts said world oil use is increasing at the rate of about one million extra barrels a day and the world's oil producers could not keep up.

http://theage.com.au/news/20001018/A57400-2000Oct17.html

-- Martin Thompson (mthom1927@aol.com), October 17, 2000

Answers

The Aussie dollar seems to be accompanying the euro - down, down, down.

-- (wayward@webtv.net), October 17, 2000.

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