Local sharemarket falls sharply as oil hits another record high: Economy roundup

The price of oil hit a record high of $US140.39 in overnight trade, eclipsing the previous record of $US139.89 a barrel on 16 June and sending another shiver through global sharemarkets.

The price of oil hit a record high of $US140.39 in overnight trade, eclipsing the previous record of $US139.89 a barrel on 16 June and sending another shiver through global sharemarkets.

On Wall Street, the Dow Jones fell 3% to a 21-month low on news of the spike in oil prices and concerns about the profit outlook for banks and automotive companies.

The Australian sharemarket has fallen 2.3% to a three-month low in morning trade. The benchmark S&P/ASX200 index tumbled 123.9 points to 5183.1 at 11:50am EST.

US crude eventually settled up $US5.09 at $US139.64 a barrel after Libya said it would consider cutting production if the US Congress passed a law that would empower the Justice Department to sue members of the Organisation of Petroleum Exporting Countries (OPEC) for limiting oil supplies.

US President George W Bush says he will veto the law if it is passed by Congress, but the Libyans are not happy about the threats and say they will consider slashing production in retaliation.

Meanwhile, OPEC President Chakib Khelil has warned consumers to brace for even higher petrol prices. “I forecast prices probably between $US150 and $US170 during this summer. That will perhaps ease towards the end of the year,” Khelil said during a French television interview.

The soaring oil price has not helped refiner Caltex Australia, which announced this morning that first half net profit is likely to fall by up to 40% due to flat petrol sales, lower margins and plant shutdowns. Shares in the oil refiner lost as much as 8.5% after the announcement.

The other big corporate news comes from the banking sector. The Australian Financial Review reports that Westpac’s takeover of St George may not be certain, despite the two companies having signed a merger agreement. The chief executive of St George, Paul Fegan, says a recent fall in Westpac’s share price means the bid may no longer be in the best interests of his shareholders.

And there are also rumours that NAB is considering a bid for BankWest, which is owned by HBOS plc. Analysts have valued BankWest at up to $7.7 billion.