Asian economies likely to cope with new oil price shock

Hong Kong, February 6:

Brighter growth prospects for Asia over the next 12 months have raised hopes that regional economies will cope should oil prices again breach $70 a barrel.

Analysts widely see that level as probable within the next two months. Oil currently hovers a few dollars shy of the record high of $70.85 reached in August following Hurricane Katrina in the US. Seventy dollars was once thought of as a potential breaking point for regional economies with heavy reliance on oil imports. The lesser impact now envisaged marks a welcome change from the pessimism that dominated the markets just five months ago.

“Seventy dollars appears likely but global growth seems solid right now,” said David Cohen, a regional economist with Singapore-based Action Economics, “The data from across the region shows that the Asian economies finished 2005 on a solid note supported by strength in global export demand. That looks likely to continue into the first half of 2006.” Middle East tensions, consumer demand and institutions which increasingly see oil as an investment risk pushing the cost of crude to beyond $90 a barrel, according to some analysts.

BT Pension Scheme plans to invest one billion British pounds in the commodities market. “This is a huge amount of money in the commodities market,” said Tetsu Emori, chief commodities strategist with Mitsui Bussan Futures in Tokyo, “Oil prices would be pushed up by this kind of pension fund money.” That prospect, plus possible sanctions against Iran and unparalleled growth in markets like China and India, has Emori forecasting oil prices of $90-$97 in the second half of this year.

At those levels analysts expect inflation to rise, coercing central banks into another round of interest rate hikes, and global economic growth to falter. However, even at $90 to $100 a barrel Cohen is optimistic the region would weather the economic fallout, if spiralling oil prices are driven more by demand than political risk factors.

“The increase last year reflected a strength in global demand rather than a supply shock — if that continues to hold through this year then the higher prices should not derail the growth in the region,” he said, “It would subtract some percentage points from growth.”

Oil prices jump

SINGAPORE: Oil prices rose sharply on Monday after Iran ended all voluntary cooperation with the UN nuclear watchdog agency, saying it would start uranium enrichment and bar surprise inspections of its facilities. Light, sweet crude for March delivery rose by $1.01 to $66.38 a barrel on the New York Mercantile Exchange. — AP