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.