OPEC output increase to benefit Asia little

OPEC output increase to benefit Asia little

SINGAPORE (Reuters): Battered and bruised Asian economies
cannot expect much respite from OPEC's decision to raise its oil
output ceiling, as the price fall will not be enough to offset
currency losses, energy analysts said yesterday.

In fact, net oil exporters Indonesia and Malaysia, which are
in the throes of an economic slowdown, will be adversely affected
by the Organization of Petroleum Exporting Countries (OPEC)
decision to raise output ceiling by 10 percent.

"It is good news in the near term but I don't see oil prices
crashing," said Gordon Kwan, analyst at Daiwa Securities. "The
decrease in oil prices won't offset the fall in currency,"

"The northern Asian countries, Thailand and the Philippines
will be big winners, and definitely India," said James Brown
analyst at Merrill Lynch.

"(But) Malaysia and Indonesia will be adversely affected," he
said.

Indonesia, Asia's only OPEC member, exports around 780,000
barrels per day (bpd) while Malaysia exports some 370,000 bpd.

Oil revenue is a major contributor to these countries' state
coffers and a substantial price fall will have a huge impact on
their foreign exchange earnings, the analysts said.

OPEC agreed on Saturday to a hefty 2.5 million bpd increase
that boosted its collective output ceiling to 27.5 million. OPEC
output accounts for just under 40 percent of the world's total
oil supplies.

The energy-starved Asian economies import more than 60 percent
of their 19.4 million barrels per day (bpd) oil consumption,
analysts said.

They said the oil market had already factored in the slowdown
of the Asian economies and the resulting fall in oil demand as
well as the expected hike to the OPEC ceiling.

The current economic turmoil will lead to a slowdown in oil
product demand growth, to 3-4 percent from 5-6 percent in 1998,
analysts said.

"A lot of this has already been priced in. Brent crude is down
20 percent from its peak in late September," Kwan said.

Brent crude oil traded to a high of $21.61 per barrel on
October 4 but closed at $18.94 on Friday.

The market price had already lost about 50 cents more as of
around 0830 GMT on Monday.

Kwan said he expected Brent crude to stay above $18.00 over
the next few months as the amount of additional oil coming from
OPEC's new quota is fairly small--around one million bpd.

"In the medium term (three-four months) the market will find
support at $18.00. It shouldn't drop that much," Kwan said.

The fall in oil prices will, however, help oil companies lift
their bottomline in the face of hefty foreign currency losses.

South Korean oil companies had chalked up operating profit
growth of up to 40 percent but the bottomline fell by between 30
to 40 percent when foreign currency losses are factored in,
analyst Bill Hunsaker of ING-Barings Securities said.

"The oil companies are not suffering right now. They are only
suffering from translation loss," Hunsaker said.

Echoing the same sentiment, analyst Neil Sample of ABN Amro
said that Thai oil companies are also reporting similar results.

Sample said that Thai refiner Bangchak Petroleum Plc enjoyed
good margins in the third quarter but reported a net loss of Baht
2.2 billion in third quarter due to a 2.97 billion foreign
exchange loss.

"It (the price fall) is positive. When oil prices go down,
companies will adjust product prices but they will do it slowly
and so temporarily margins will be fat," Hunsaker said.