Asian countries edgy as oil prices spiral higher

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Asian countries edgy as oil prices spiral higher Agence France-Presse Bernice Han

September 21, 2000

SINGAPORE, Sept 21 (AFP) - The mood across Asia has turned decidedly more edgy as soaring oil prices threaten fragile confidence and the pace of economic recovery.

Asian economies are not so energy efficient as western counterparts and concerns are now mounting that the apparently relentless spike in oil prices could derail the region's recovery from the 1997 economic meltdown, analysts said Thursday.

Already financial markets have taken a battering.

"It will hurt consumer confidence in the region," said Steve Brice, a Singapore-based economist at Standard Chartered Bank.

The Asian Development Bank (ADB) warned this week that some economies, already saddled with depreciating currencies and weak income from farm exports, would be hit very hard if oil prices continued to hover around the 35 dollars a barrel mark over the next few months.

ADB chief economist Yoshihiro Iwasaki said if petroleum prices remained at around 35 dollars for a year, the negative impact on growth of Asia's oil-dependent economies would be double relative to the rest of the world.

The Organization of Petroleum Exporting Countries' (OPEC) pledge that it was ready to raise output to meet global demand failed to cap prices and was met with skepticism.

"The question is how do you raise existing capacity," said Gerard Teo, a regional economist Teo at ABN Amro Bank, pointing to the fact most producers are already pumping as much oil as they can.

The price of light sweet crude on the New York Mercantile Exchange rose 69 cents to 37.20 a barrel Wednesday, the highest level since the crisis following the 1990 Iraqi invasion of Kuwait.

And a cold northern winter would keep oil prices at "stratospheric levels," Standard Chartered Bank said in a report.

Developing countries in the region will be the hardest hit.

China, a net importer of oil since 1993, can no longer insulate itself from global markets. Last year, China's imported crude accounted for 20 percent of the domestic market, and the reliance on imports appears set to increase this year.

BNP Prime Peregrine in Beijing expects next year's economic growth to be about 7.8 percent, roughly the same as this year. But if oil prices reach levels of 33 to 40 dollars per barrel, the 2001 growth forecast may have to be revised down to 7.5 or 7.6 percent.

Other forecasts are even more pessimistic, predicting that China's economic growth could be reduced by as much as 0.6 percentage point from rising oil prices.

China has raised domestic retail oil prices seven times this year, allowing local refiners to pass rising crude oil prices on to the consumers.

Vietnam will increase oil prices and remove import taxes for oil and petrol in an attempt to cut government subsidies for fuel prices, the official media said Thursday.

However, analysts said the government would have to continue to subsidize fuel because trading enterprises had suffered an average loss of 800-900 dong a litre.

Although Vietnam ranks fourth amongst southeast Asian oil producers after Indonesia, Malaysia, and Brunei, the country is still a large importer because it has no oil refineries operating yet.

Asia has not seen anything like the wave of protests that has swept Western Europe, although Thai Prime Minister Chuan Leekpai Thursday encouraged his countrymen to join an international "car-free day" on Friday to protest surging oil prices.

"I may walk or ride one of my two mountain bicycles because I want to join the campaign," he told reporters at Government House.

Thailand will have to pay 250 billion baht for oil imports this year, 52.4 percent up on last year.

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http://denver.petroleumplace.com/egatecom/scream/2000/09/21/ANA/0392-0389-Oil-Asia.sched...html

-- Martin Thompson (mthom1927@aol.com), September 21, 2000


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