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.