Low oil prices offer rare respite to Asian economies

Low oil prices offer rare respite to Asian economies

SINGAPORE (Reuters): As oil group OPEC looks for ways to get oil prices higher, Asian governments are likely to be watching events with more than passing interest.

Faced with the worst economic crisis in decades, the region, a large net importer of petroleum, has found consolation in stubbornly weak oil prices.

"If oil prices had remained at US$20 a barrel, the Asian economies would have been much worse," said John Russel, managing director of Bangkok-based Petroleum Economics Ltd (PEL).

Instead oil, at $13.70 so far this year on average for benchmark Brent, is priced at 20-year lows.

That rankles OPEC -- the Organization of the Petroleum Exporting Countries -- which is looking for a way to get prices moving higher. It says low oil prices this year have already cost it $50 billion.

"We believe current oil prices are too low. OPEC has to make efforts on how to increase the price," Kuntoro Mangkusubroto, oil minister of OPEC member Indonesia, said on Monday.

The slump in oil has offered a major counter balance to the fall in the dollar value of regional currencies. Oil is traded in U.S. dollars.

Most government budgets were based on much higher oil prices.

In Thailand, the baht's dollar-purchasing power has fallen 40 percent since the economic crisis began.

Over the same time, the dollar value of oil has fallen about 37 percent, countering the fall in the value of the currency.

Lower demand has also helped, but on a barrel for barrel basis, the price of oil for many countries has hardly moved owing to the price slump and the fall in currency values.

Even in dollar values, most import bills are down because of a fall in demand.

Analysts estimate that India could save more than $1 billion on its import bill in the year to March, and South Korea reported that the value of September imports were 42 percent lower than a year earlier.

Now, there could be more good news on the horizon for Asia, which is a net importer of some 11 million barrels per day (bpd) of crude. Indigenous production is around seven million bpd.

Oil experts say they expect oil prices to stay low next year, and possibly longer, because global oil stocks are too high and demand is expected to be too weak to get prices moving much higher than current levels.

"A continued fall in oil prices will greatly support Asian economies," Russel said.

But while many analysts predict low prices well into the second half of 1999, Russel notes that oil prices can turn quickly.

Many current forecasts are based simply on the fact that prices have been so low, for so long. So they will stay low.

For next year, much now lies in the hands of OPEC, which meets this week at its Vienna headquarters to look for a way to get stubbornly low oil prices higher.

"Any action by OPEC to push up prices significantly would step back the recovery in Asian economies," Russel said.