Oil prices hit $53, shake global market
The Jakarta Post, Jakarta
World oil prices shot to new record summits beyond US$52 on Thursday, with markets nervous about tight global supplies with winter looming in the northern hemisphere.
Asian stocks plunged amid rising concerns that growth in the global economy would slow due to the oil hike.
The price of reference light sweet crude for November delivery climbed to as high as $52.53 a barrel in electronic trading on the New York Mercantile Exchange, the highest level in the contract's 21-year history, AFP reported.
U.S. crude futures later declined slightly to $52.31, showing a gain of 29 cents from the previous close.
In London, Brent North Sea crude oil for delivery in November rose to a new record of $48.50 a barrel in early trading. It stood at $48.40 in late-morning deals, a gain of 41 cents.
While many here are concerned about the impact of the oil price hike on the economy, noted economist Chatib Basri, a director of the University of Indonesia's Institute for Economic and Social Research (LPEM-UI), said the economy would only be severely impacted if prices remained high in the medium term.
"It will hurt economic growth significantly if the high oil prices are sustained ... for up to a year, which I doubt. If prices stay high a year, my calculations show economic growth would be reduced by 0.15 percent," Chatib said.
"On industry, there will definitely be an impact as production costs become higher. But, as the IMF and World Bank have said, the impact would be negligible as long as the current trend is short-lived."
"In fiscal terms I think, the impact would be manageable, despite the huge (national fuel) subsidy. The problem in this case is the priorities. Do we need to spend Rp 63 trillion (in fuel subsidies for this year) for those who are not really in need?" The subsidy had been mostly enjoyed by rich car owners, he said.
The latest hike will put more pressure on president-elect Susilo Bambang Yudhoyono to take the politically unpopular measure of raising fuel prices as early as late November (less than two months after assuming office) to ensure the cost of the subsidy does not increase further. Lawmakers have suggested the new government raises the prices of some fuels by around 30 percent.
A recent LPEM-UI study revealed that a price hike of less than 30 percent would increase inflation by less than 1 percent. It cited a case in early 2002 where the government raised the fuel prices by an average of 22 percent -- combined with an average of 6 percent increase in power tariffs -- inflation in the following month rose by 0.8 percent.
Asian stocks fell on Thursday, with Morgan Stanley Capital International's Asia-Pacific Index, which tracks more than 900 stocks, shedding 0.2 percent to 91.51. In Jakarta, the stock index dropped by 0.7 percent; the biggest decliner in the region.
Oil prices pushed into unchartered territory after weekly estimates of U.S. commercial oil inventories released on Wednesday showed falls in stocks of heating oil.
"There's a lot of concern surrounding the levels of stocks in the U.S.," Veronica Smart, an analyst at the Energy Information Center, a British-based consultancy, was quoted by AFP as saying.
"We're approaching winter when demand is obviously higher, particularly for gas-oil. If we do have a particularly harsh winter I think supplies could struggle."
In the event of a cold snap, "we could definitely see Brent breaking $50 a barrel and heading further up," she predicted.
Weekly U.S. crude oil and gasoline inventories rose modestly as importers and refiners began to recover from Hurricane Ivan, the U.S. Energy Department said Wednesday.