Oil price hike a new headache for Asia

Oil price hike a new headache for Asia

SINGAPORE (Reuters): If global oil exporters get their way, net importer Asia will feel the bite of the highest crude prices in more than 15 months, analysts said on Monday.

"For the oil importing countries of Asia, a sharp rise in the oil prices would be a significant setback for economic recovery," John Russel, managing director of Bangkok-based Petroleum Economics Ltd said.

The oil import bill would start to affect the balance of payments and slow down the pace of deregulation in some countries which are trying to generate competition.

The only hope is that oil prices will rise slowly to reduce the impact on regional economies, which are trying to emerge from 20 months of economic crisis.

Obvious gainers to a higher oil price would be major producers, like Malaysia and OPEC member Indonesia.

Oil producers agreed in a meeting in The Hague on Friday to cut more than two million barrels per day from production. That would represent around 2.6 percent on global supply of 75 million bpd.

The pact could jet prices to between $15 and $18 per barrel in coming months. Benchmark Brent, which stands around $12.56 per barrel, has not traded above $18 since December 1997.

Oil prices have been muted to the deal so far, but analysts believe it could prove a turning point for oil, which is languishing near 12-year price lows.

Saudi Arabian oil minister Ali al-Naimi, one of the major architects of the latest agreement, believes world oil stocks would be back to normal by June and prices could rise $4 per barrel.

Some analysts are skeptical such quick price gains will result from the pact because of the huge overhang in oil stocks. But they said the agreement could be the final measure needed to get oil prices on a sustained recovery by the end of the year.

For Asia, which imports around 13 million barrels per day (bpd) of its 19 million bpd consumption, it means higher import bills.

But with a few weeks before the start of the April-March fiscal year, governments have time to juggle their budgets and accommodate a higher import price for oil.

During the slump in oil prices to 12-year lows in 1998, Asian economies did not particularly gain because the benefit was offset by weaker currencies.

But a rising oil price could swing that balance to putting pressure on dollar expenditure because currencies are far from recovering to pre-crisis levels.

"Clearly, it would be quite negative in terms of disrupting the process of stabilization of countries in the region. It could prolong the relative recession," Russel said.

In addition, it would set back marginal demand for oil, especially in deregulating countries where competition is becoming increasingly price sensitive.

For net oil exporter Indonesia, Asia's only member of OPEC, a much higher oil price would add significantly to the government's coffers at a time when it is struggling to shake off recession and a sunken currency.

The government has budgeted oil prices at just $10.50 per barrel for the year starting April 1, down from $13 in the current fiscal year ending March 31.

In February, the government's average sales price for its crudes was 10.69 per barrel.

Mines and Energy Minister Kuntoro Mangkusubroto said earlier on Monday that the government had not yet decided whether to commit any of its crude production, which analysts estimate at 1.36 million bpd, to the latest round of cuts. OPEC meets next week in Vienna.

"All options are open," he told reporters.