Asian states prone to oil price rise

Asian states prone to oil price rise

SINGAPORE (Reuter): Crude prices in Asia have come crashing down after spiking to an eight month peak but remain high enough to leave some Asian economies reeling, oil traders and analysts said yesterday.

The effect of currency devaluations in net oil importers Thailand and Philippines has been exacerbated by higher dollar- based oil prices -- a double hit.

India has just cleared a huge oil subsidy deficit, partly the result of oil prices hitting five-year highs in 1996, only to see oil prices rise again.

"It's the last thing they needed," said James Brown, an energy analyst at Merrill Lynch in Australia.

November North Sea Brent in London jumped $1.13 to $21.61 per barrel on Friday -- an eight month high and 19 percent above levels seen in mid-September.

Prices cooled on Monday and the contract was quoted around $20.57 in Singapore on Tuesday at 0700 GMT, more than $1 lower than Friday's peak but still 14 percent above mid-September prices.

The New York Mercantile Exchange (NYMEX) market told a similar story. On Tuesday the NYMEX November contract traded in Asia at $21.91 per barrel, below the eight-month high of $23.15, but 13 percent higher than mid September levels.

Prices rose with heightened tension in the Middle East -- home to 65 percent of world oil reserves -- as Iranian warplanes hit opposition groups in the United Nations no-fly zone over Iraqi territory, drawing a warning from the United States.

The United States ordered an aircraft carrier to skip a port call and sail straight to the Gulf.

U.N. weapons inspectors have reported interference from Iraq in carrying out inspections, raising the prospect of further sanctions against Baghdad, already under a U.N. world trade embargo for its invasion of Kuwait in 1990.

For some Asian economies the price spike has been a nasty shock to economies already suffering from massive currency woes. Against the dollar, the Philippines peso has fallen 26 percent, the Thai baht 28 percent, Indonesian rupiah 34 percent and Malaysian ringgit 23 percent since July when the turmoil began.

The crude price rise has added to the damage for Thailand and the Philippines, who are net importers of crude. But Indonesia and Malaysia are shielded because they are net exporters.

"It's a huge problem for refineries in the Philippines and Thailand. They are under enormous political pressure already to minimize price increases," Brown said.

Adding to the squeeze on the Philippines, the country's Supreme Court on Tuesday ordered refineries to stop fuel price rises for at least 30 days because of a question over the legality of deregulation.

India could start to see increased pressure on its oil subsidies. The account deficit ballooned to 190 billion rupees ($5.2 billion) in September before the government finally decided to wipe the slate clean through a bond issue.

"They have got the oil pool back into balance after issuing oil bonds and then suddenly the oil prices go up again," Brown said.

But oil traders said the firm price was likely to be short lived, which would ease the pain for the Asian economies.