Asia currency turmoil slows oil demand growth

Asia currency turmoil slows oil demand growth

SINGAPORE (Reuter): The impact of the currency devaluation in
Asia will hold back oil demand growth slightly, the East-West
Center said in a report yesterday.

Before the turmoil the Honolulu-based think-tank forecast
annual oil demand growth in Asia for the rest of the decade at
around 4.1 percent.

If the currency crisis lasts for a year, this figure would
fall to 3.9 percent, author of the report Sara Banaszak said.
That would translate into a reduction in oil demand of 94,000
barrels per day (bpd) for 1997, slowing overall growth to
655,000-bpd.

But if the economic crisis lasts two or three years, annual
growth until 2000 would drop to 3.1-percent.

The difference between the two scenarios would represent
600,000-bpd in petroleum products by 2000, the report said.

"Recent currency devaluations in Thailand, Malaysia, the
Philippines and even Singapore, will certainly have a short run
negative impact on economic growth, and could dampen growth rates
of oil demand... the long term effects are not so clear,"
Banaszak wrote.

The Center forecasts that oil demand growth between 2000-2005
would be 3.6-percent if the crisis is short-lived, versus a lower
rate of 3.1-percent if the impact of the crisis continues.

Thailand's economic crisis, which began in July when the
government allowed the baht to float, has had a domino effect on
the region. The Philippines, Indonesia and Malaysia all suffered
de facto currency devaluations of between 15 and 25 percent.

The report said that demand was already slowing when the
currency crisis hit the region.

"In fact, annual (oil demand) growth rates in Asia were high
in the late 1980s and early 1990s," Banaszak said.

"This year and last year, oil product demand has begun to show
slower growth."

In 1996, the incremental growth in oil demand in the Asia-
Pacific region was 712,000 barrels-per-day (bpd), down from
798,000 bpd in 1995 and 940,000-bpd in 1994, an East-West paper
in April said.

In other words, the rate of growth fell to 4.1-percent in
1996, down from 4.8 in 1995 and 6.0 percent in 1994, due to the
slower oil demand growth in Taiwan, South Korea, the Philippines,
and to a lesser extent India, Indonesia and Malaysia, it said.

Banaszak also said the crisis will have a impact on the demand
for specific oil products.

"The petrochemical industry and the demand for naphtha follow
changes in GDP more closely than fuels used in transportation or
power generation," she said.

But once again, the underlying trend has not altered and "the
demand barrel will continue to lighten, with growth in middle
distillates (gas oil, kerosene/jet fuel) strongest," she said.