Asia warned of the impact of rising oil prices

Asia warned of the impact of rising oil prices

SINGAPORE (AP): Soaring oil prices have the Western world
bracing for the worst, but many Asian countries may be better
positioned to avoid a sting.

OPEC has limited oil production, increasing prices from US$ 12
a barrel last year to about $30 a barrel in recent months. At the
peak of the Asian economic crisis about two years ago, the jump
would have plunged the region into a deeper slump.

But things have changed in Asia. Currencies and businesses are
on the rebound, nuclear reactors are used more for energy, and
changes in manufacturing practices mean less reliance on heating
oil.

"Oil is a lot less important these days," said Scott Weaver,
deputy head of research at ING Barings Securities' Taiwan branch.

In Asia, the oil market is diverse, ranging from Japan, which
imports all its oil, to Indonesia, a big oil producer that sees
the price increase as a windfall.

If the prices continue to rise, economists say consumers in
Asia could be hit by general inflation, a common result of high
oil prices. But across the region, even a huge price jump is
nowhere near the nightmare it would have been only a few years
earlier, they say.

"As incomes are rising, people are spending more on things
like mobile phones, housing, health care and other services,"
Weaver said. "Fuel would've been a higher percentage of their
costs 20 years ago."

Big, modern manufacturing centers such as Taiwan and Hong Kong
are somewhat vulnerable. But in the past two decades they've
moved from making mostly plastic goods and textiles to stereos
and computer chips that require a lot less oil byproducts and
energy.

Energy sources have also changed.

Nuclear reactors now supply more than a third of Japan's
electricity, compared with 6.5 percent during the oil crisis of
the mid-1970s, according to the country's energy agency.

South Korea, an industrial giant that also imports nearly all
its oil, is not panicking but is still preparing, nevertheless.

"We need to inform people how much energy imports we can
reduce by just turning off the lights...," South Korean President
Kim Dae-jung said recently.

In tropical Southeast Asia, many countries have a natural
defense against high oil prices: year-round hot weather.

"The situation is a lot worse in the Northern Hemisphere
because of the demand caused by cold weather," said Jorge
Montepeque, Singapore-based Asia Pacific editorial director of
Platt's, a global commodity news service headquartered in New
York.

Consumers across the Asia-Pacific may feel a pinch, but most
analysts believe it will be slight, and offset by economic
recovery.

Premium gasoline in Australia, for example, could rise in the
next year from the current 75 Australian cents (US$0.47) per
liter ($1.79 per gallon) to over 1 Australian dollar ($0.63) per
liter ($2.39 per gallon) - but only in rural parts of the
country, where the cost of transporting fuel drives up the price,
said Michael Economides, University of Houston professor of
petroleum engineering.

But free-market reforms and consumer thrift left over from the
Asian financial crisis, which began in 1997, may force big
corporations and governments to take more of the punches.

"Big industrial users are feeling the pain - pulp mills, glass
makers, steel mills," said Martin Pennay, a derivatives marketer
for Citibank in Sydney. "It's difficult for them to pass on an
increase in fuel prices to consumers."

Oil refiners' margins are weak, especially in places like
Singapore, said James Weinrauch, a Singapore-based consultant at
Poten and Partners.

Singapore, a wealthy city-state in Southeast Asia, is a
regional hub for petrochemical giants, including Exxon Mobil and
Shell.

Unable to raise gasoline and chemical prices too high in the
wake of the Asian crisis, "refiners will have to settle for
smaller margins, and try and defend their margins by cutting back
production," Weinrauch said.

Fuel prices for consumers are kept artificially low by the
governments of China and India, both of which have obvious
political reasons for their reluctance to lower subsidies.

In Indonesia, a reduction in fuel subsidies sparked massive
riots that toppled powerful President Soeharto less than two
years ago. Despite that, the government is considering doing that
again.