Caltex Australia CEO: $200 oil on the horizon  

The ABC's Lateline program during the week had an interview with Caltex Australia CEO Des King, who said we could be looking at an oil price of $200 a barrel in the not too distant future.

ALI MOORE: You've warned you'll cut production if refinery margins fall below operating costs, how close are they right now?

DES KING: We're a long, long way away from that point, but we just wanted to make people realise that we're certainly prepared to run this business for the long term and that means running for maximising cash.

So it would be, for example, if margins were to drop in the second half of the year significantly we would operate the business to maximise cash, which would be cutting back on output if we needed to. That's just a worst case scenario and we certainly hope we don't have to go there.

ALI MOORE: You say worst case scenario, but given the rising cost of crude and the stronger Australian dollar, neither of which show any sign of turning around, is your scenario more likely than not to become reality?

DES KING: I don't think it's likely to become a reality, but it's important that we have plans in place should that eventuate.

What's really going to happen is going to depend on what happens in the United States. The United States is the biggest consumer of fuel, particularly petrol. If their recession becomes extended that could impact the margins for petrol.

It's really that refining margin that's important. We certainly hope the US slowdown isn't extended and they start getting back on track for growth again. It's just scenario planning for us.

ALI MOORE: Let's look at the price of oil. It's currently nudging US $120 a barrel, is $200 a barrel on the cards? Where do you think it's heading?

DES KING: We wish it would go lower rather than higher. We just don't know. It's all supply and demand.

But looking at how the world's demands for energy keep going up and up, I think a $200 oil price is somewhere in the future. We don't know how far away it is. But even though the world is going into a slower growth this year, China and India are still going ahead and a number of people are saying we're going to consume over a million barrels a day more oil in 2008, compared 2007.

ALI MOORE: If we bring it back to Australia and the price at the petrol pump, what will that mean, we're already close to two dollar petrol?

DES KING: We are and if you look at the cost of crude, petrol today is about 1.50 on average and the cost in crude in that is 80 to 85 cents. It is a large component so it does impact the price at the pump.

Obviously if the Aussie dollar gets weaker that will actually drive up that element of the crude price if the crude price stays the same. Hopefully the price of crude will soften before it goes up, but the long term trend unfortunately is for higher crude oil prices.

ALI MOORE: Can you be anymore exact than that? What do you think the price at the pump will be in, say, three months' time?

DES KING: It's very hard for us to project that. It depend on refinery production worldwide, US demand a whole number of features. But I think there may be ups and downs, but long term unfortunately I think the price of petrol is going to keep climbing.

ALI MOORE: At what point do you think price will really become prohibitive for motorists? At what point do people stop buying petrol, leave the car at home, curtail the amount of time they spend on the road?

DES KING: We've already seen pretty slow growth of petrol. If you look at the total demand for petrol in Australia in 2007, compared to 2006, there was only 0.8 per cent more petrol consumed in Australia 07 compared to 06. When we look at the most recent result, first quarter 08 compared to first quarter 07, it was pretty flat. People are already not buying more and, in fact, we're starting to see the impact of the higher prices on consumption.