Analysts say rising oil won't curb Asia's rally

Analysts say rising oil won't curb Asia's rally

SINGAPORE (Reuters): Buoyant oil prices, likely to breach a
two-year high before year end, are unlikely to stifle Asia's
rapid economic recovery, analysts said on Tuesday.

Crisis-hit countries such as oil producers Indonesia and
Malaysia were in for a large windfall, but others facing a bigger
import bill could find their recoveries dampened.

"Clearly there will be concern over the rising costs of energy
and this is a factor which will hold back possibly even stronger
growth, but I do not think the oil prices, so long as it does not
shoot above $18 to $20 per barrel, will seriously impede the
process of recovery in the region," John Russel, Managing
Director of Petroleum Economics Ltd told Reuters.

Bob Anderson, Senior Principal at consultant Purvin & Gertz
said that Asia, having gone through crude oil prices over $25 per
barrel three years ago, would be able to cope with the hike.

Benchmark Brent crude on Monday closed at $16.69 per barrel in
London, about 75 percent more than the 12-year low of $9.55 per
barrel seen in December 1998.

Bangkok-based Russell said Thailand "is the one which might
find it a little bit more difficult to get the process of
recovery up and running" as a result of the price increase.

Thailand imports most of its more than 860,000 barrel-per-day
(bpd) oil and gas needs, and high prices were hurting its
finances and adding to inflation concerns.

Last year, Thailand's crude oil imports alone amounted to
136.45 billion baht, down 18.5 percent from a year ago.

South Korea, the other country in Asia where energy imports
were a big ticket item, was seen better able to cope with the
rising prices due to stronger economic fundamentals.

The country's gross domestic product (GDP), which grew by an
impressive 4.6 percent in the first quarter, would be cut by 0.16
percent this year if oil prices maintained their current upward
trend, the central Bank of Korea said in April.

Working on the basis of benchmark Brent crude at $17-19 per
barrel by end-1999, a level which oil analysts felt was most
likely to be achieved, the central bank said current account
surplus would fall by $1.5 billion while the consumer price index
would increase by 0.47 percent.

Analysts said higher oil prices were here to stay because of a
fundamental change in the Organization of Petroleum Exporting
Countries (OPEC) leading to strict compliance of agreed
production cuts and better demand in Asia.

"We are very strongly of the view that a serious reform has
taken place within OPEC which will have a lasting impact or at
least over the foreseeable future...so we anticipate a very high
degree of implementation (of production cuts)," Russell said.

OPEC and non-OPEC states in March agreed to a third round of
production cuts which sparked the current price rally.

Global oil demand was forecast to grow by about one million
bpd this year compared to flat growth last year, with about half
of that coming from Asia.

"So far a continued surplus in the physical market has acted
as a brake on this spectacular recovery...but the physicals will
progressively support these numbers through the second half of
this year," he said.

Oil producers in the region such as Indonesia and Malaysia
were enjoying a significant increase in revenues as budgets were
set when prices were much lower.

Indonesia would see revenues increase by 50 percent or about
Rp 10 trillion if prices stayed at current levels, Martiono
Hadianto, President of state-oil firm Pertamina said two weeks
ago.