Oil prices hit two-year low

The steady fall in oil prices to a two-year low is good news for nearly every business in Western Australia – except for the companies actually producing oil.

Earlier this week, Australia’s largest oil and gas producer, Woodside Petroleum Ltd, issued its December quarter and annual production and revenue results, both of which indicated falling oil prices had hit the company’s bottom line.

While Woodside’s total annual revenue was barely affected, falling by just $11.7 million to $2.34 billion, fourth quarter 2001 revenue was down by $273 million from the same period in 2000.

While much was attributable to a two-million barrel fall in production from the Laminaria/ Corallina field, the relatively new Legendre field added 1.4 million barrels (mmbbl) of oil to December quarter production and nearly three mmbbl for 2001, leaving lower product prices as the other factor in the drop in income.

The company’s sales of gas to the domestic and international markets were solid.

But while domestic gas prices are set independently of oil prices, the weaker oil price is expected to bring down the price of the liquified natural gas (LNG) Woodside and its North West Shelf partners export to Asia – a major source of income for Woodside.

And analysts are predicting little joy for investors banking on a strong improvement in oil prices; unless dramatic international events cause prices to spike, oil is regarded as unlikely to rise above $US25 per barrel.

The Organisation of Petroleum Exporting Countries (OPEC) and non-OPEC countries like Russia and Norway appear reluctant to cut production below current levels.

According to Resource Analyst at Hogan & Partners, Adam Conigliaro, oil prices could firm in the second half of this year as the US economy gets back on its feet.

In the meantime, the benchmark West Texas Intermediate crude would sell for $US18 to $US23 per barrel.

DJ Carmichael senior analyst Peter Strachan agreed, suggesting it would be 12 to 18 months before demand drove the price of oil above $US25. "I think if it did you’d see a lot of cheating, a lot of oil being slipped out the back door from Russia,’" he said.

“But in the long term, no-one’s making any more oil. The oil that’s being found and used is a depleting asset, and in the long term there are strong arguments to say oil will be $US100 a barrel, not $US20.

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