Oil prices soar to fresh record highs: $53 in New York
Oil prices soar to fresh record highs: $53 in New York
Dadan Wijaksana
The Jakarta Post
Jakarta
World oil prices bolted to new record summits Thursday,
reaching US$53 in New York on 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
spiked at $53 a barrel in opening deals on the New York
Mercantile Exchange, the highest level in the contract's 21-year
history, AFP reported.
U.S. crude futures later eased slightly to 52.63 dollars, but
was still showing a gain of 61 cents from the previous close.
In London Brent North Sea crude oil for delivery in November
surged above $49 a barrel for the first time, hitting $49.20 a
barrel in afternoon trading. It later stood at $48.85, a gain of
86 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."
Adjusted for inflation, world oil prices remain far below the
levels reached in the wake of the 1979 Iranian revolution when
prices surged to upwards of $80 a barrel in today's money.
But prices have more than doubled from about $20 a barrel in
New York at the start of 2002, surging by about 50 percent since
the start of this year.