Soaring Fuel Fails To Ignite Activity As Banks Lead March Down

The Age

Thursday May 8, 2008

Vanessa Burrow

AFTER a brief vacation south of $US115 a barrel, oil has surged to a record $US121.84, suggesting speculative investors are still relying on it as a foil to US dollar weakness.

Tapis oil out of Singapore, which more directly affects Australians, has risen to $US125.93 a barrel. But apart from adding to inflationary pressures, the high oil price has done little for the Australian market, or the companies that are directly affected.

Woodside Petroleum lost 75? to $59.25 and the market as a whole, as measured by the benchmark S&P/ASX 200 Index, fell 33 points, or 0.6%, to 5668.4. The banks led the falls, with Commonwealth Bank losing $1.35 to $41.90, Westpac down 81? to $24.79, National Australia Bank declining 92? to $30.50 and ANZ losing 60? to $22.30. St George, which reported a decline in net profit on Tuesday, lost 93? to $26.05.

ABN Amro analyst Jarrod Martin labelled the bank the "least preferred" of its peer group, and put a 12-month target price of $25.35 on the stock.

"We believe St George continues to face significant headwinds, particularly given the deteriorating credit environment," he wrote. "As a result, we believe there is a real risk of St George missing its modified guidance of 8% to 10% earnings-per-share growth."

Retailer Woolworths lost 46? to $28.07 and AMP was down 29? to $7.28.

On the upside, Fortescue Metals jumped 76?, or 8.8%, to $9.39 as it straddled the gap between explorer and producer. Its first shipment of iron ore is now being loaded for export.

Takeover speculation has again hit copper and gold producer Oxiana, which was up 7.2%. Talk that global mining company Xstrata might snaffle Oxiana and its merger partner, Zinifex, pushed Oxiana's shares 24? higher to $3.58. Zinifex jumped 41? to $10.50.

BHP Billiton gained 87? to $45.29 and Rio Tinto was up $3.33 to $145.26.

Comparing the Australian equity market with the rest of the world, senior Macquarie Group analysts David Macri, Tanya Branwhite and Neale Goldston-Morris said Australian equities were good value.

"However, this is being driven entirely by the resources sector, which stands out on a global basis by offering not only extremely strong growth, but earnings upgrades in an environment of negative earnings revisions," they wrote.

"Resources too still face some risk from ongoing cost pressures and volume deliveries; however, the risk of higher costs are, it appears at this point, more than counteracted by the higher commodity prices which have so far defied the looming global slowdown."

Among smaller companies, Kairiki Energy added 7?, or 50%, to 21? and Nido Petroleum was up 14.5?, or 40.9%, to 50?. The companies have a joint-venture project in the Philippines that they believe has the potential to produce 11.6 billion barrels of oil. Nido has asked for expressions of interest for a strategic partner to help it explore for oil and gas in the area.

And the volatile MEO Australia, which has projects in the Timor Sea, gained 8?, or 32%, to 33? after reporting its progress to the market.

Meanwhile, the Australian dollar is swinging from peak to peak, having reached US95.07? yesterday after notching another record just a couple of weeks ago (see graph below). It was buying US94.7? last night.

? For the latest employment figures, go to www.businessday.com.au from 11.30am.

© 2008 The Age

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