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.