International | Jun 24 2009
By Chris Shaw
While it pales into insignificance when compared to the more than 350% run up in oil prices leading to a peak near US$150 per barrel about a year ago, the 63% gain in Brent crude prices since February is still a major move, analysts at Nomura point out, especially given it took only four months to occur.
The analysts believe a higher oil price can be a concern as it suggests if prices continue to move higher there could be a greater economic impact given the global economy is now in a relatively fragile state when compared to the strong economic conditions that existed between 2004-2008.
One region where there is particular concern with respect to potentially higher oil prices is Asia. The region is a major importer, with aggregate net imports of crude and refined petroleum products growing from US$72 billion in 2003 to US$354 billion in 2008.
On Nomura’s calculations, every US$10 per barrel increase in Brent crude prices adds US$3 billion to Asia’s monthly net oil import bill. This makes the region more exposed than most others, with Thailand, Korea, India and the Philippines the most exposed nations within the region as all have net oil imports accounting for between 6-9% of GDP.
The analysts points out, there are five ways higher oil prices can impact on an economy including a narrowing of trade surpluses to squeezing profit margins given higher costs of production, as well as by adding to CPI inflation given a flow through impact from the higher costs and through eating into personal income given a higher cost of living. There is also a broad negative impact on global demand given a higher oil price encourages those in oil producing nations to save more of their revenues and this has an export impact on Asian nations in particular.
Any or all of these could come into play in the group’s view if oil prices continue to move higher, while the fact a number of governments in the region have slashed fuel subsidies in the wake of the global downturn means the private sectors throughout Asia would this time around be sharing a greater portion of the economic burden of higher prices.
This leads Nomura to suggest if oil prices do indeed continue to rise, there could this time be a much larger impact on GDP growth in the region than was the case during 2004-2008, at the same time as the positive impact on CPI inflation would be smaller.