Oil price falls, pressure on Aust

 SYDNEY: Australian energy firms are having to reassess their investment strategies and outlook as oil prices sit at multi-year lows, with analysts warning of knock-on effects for the wider economy as it shifts away from resources-driven growth. 

OPEC’s decision to maintain output sent the price of oil plunging last week, extending a sell-off since June that has been fuelled by a supply glut and slow demand growth.

“If prices continue to decline …  and they stay in a weakened position, then that will obviously put under pressure some projects because the business cases just won’t last,” energy analyst Tony Webber of the University of Sydney told AFP. 

“The bigger companies with the bigger cash balances can survive for longer. I think the companies that are pulling commodities out of the ground that have higher unit costs –  they will really struggle.” 

The sinking oil price mirrors the falls experienced by other commodities such as iron ore, and has a broader impact on an economy that has been driven by a decade-long boom in the resources sector. 

“This weakness in income will flow through to softer growth in the real economy, and was the main reason for ANZ’s recent downgrade to its growth forecasts and change to its monetary policy call,” ANZ senior economist Felicity Emmett said. 

“Soft income growth will weigh on profits, wages, and public revenues, and flow through to softer consumer spending, business investment and public demand.” 

Leading oil and gas producers such as Woodside Petroleum have all lost more than 10% of their value over the past few days, with Santos one of the hardest hit after plunging 21.5 % in two trading sessions. 

Australia’s leading energy companies, Oil Search, said this week the “significant drop” in prices had taken the industry by surprise and a quick return to previous levels was not expected. 

However, Oil Search has been cited as one of the firms best-placed to weather the storm with its strong balance sheet and involvement in a landmark US$19 billion PNG LNG project. 

But other energy companies may not have as favourable an outlook if prices remain depressed.

– AAP