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.