ADB confident of oil price stability

ADB confident of oil price stability

MANILA (DPA): The Asian Development Bank (ADB) said Wednesday
recent rounds of oil price increases are expected to push up
inflation in industrialized countries, but would not likely
plunge the world economy into another recession.

In its annual Asian Development Outlook, the Manila-based ADB
expressed confidence that the Organization of Petroleum Exporting
Countries (OPEC) would ensure that oil crises in the early 1970s
and 1990s that both led to recessions would not be repeated.

"OPEC probably prefers to avoid the experience that followed
the second oil shock when longer-run adjustments to demand
resulted in unusually low oil prices for a decade," the ADB
report said.

In March, world oil prices shot up to US$30 per barrel from
$10 per barrel in 1998. However, the prices have since declined
to an average of $25 per barrel as industrialized countries put
"enormous pressure" on OPEC to increase supply.

The ADB said the recent oil price hikes were due primarily to
a cutback in OPEC production.

The report noted that simulation exercises for industrial
countries by the Organization for Economic Cooperation and
Development (OECD) showed that doubling oil prices would raise
inflation by less than 1 per cent after one year.

The simulations also suggested that economic growth can be
slowed down by between 0.2 percent and 0.4 percent.

"The impact will be larger on Japan than the U.S. and the
European Union, because Japan is more dependent on imported oil
and exports much less to OPEC," the ADB said.

But the report said recent oil price hikes have not yet
affected consumer prices, which are still "remarkably steady" in
industrial economies, allaying fears that contractionary monetary
policy and recession would follow as in the past.

With OPEC already agreeing to raise production by about 7 per
cent from current levels in March, the two previous recessions
are not likely to be repeated, the ADB said.

"It is unlikely that oil prices will start back up, given the
higher production quotas recently agreed upon, continued leverage
on OPEC and the memories of two previous recessions caused by oil
shocks," it said.