SINGAPORE, 30 September 2004 — Record high oil prices nudged Asian stock markets lower yesterday and economists warned costlier fuel could sharply cut Asia’s economic growth, slash corporate earnings and fuel inflation.
Analysts said high oil prices are here to stay as supply comes under relentless pressure from surging global demand, especially in China, and wide-ranging threats of disruption. Rebel threats to attack oil facilities in Nigeria, hurricane damage to oil platforms in the US Gulf Coast, instability in Iraq and the financial and legal woes of Russian oil giant Yukos have all conspired to push prices higher.
Oversea-Chinese Banking Corp. research analyst Rohan Suppiah said in a note to clients the weaker oil prices were just a breather. “Oil prices are expected to remain persistently high, and will probably trend higher,” Suppiah said, echoing the views of Barclays Capital.
“We expect oil prices to remain high with continued upside risks to the end of 2004 and into 2005,” Barclays Capital said in a report.
“With global oil demand now beginning to ramp up towards its seasonal maximum, an already stretched logistical system is about to become even tighter. The ability of that system to meet technical or political supply-side interruptions is now at its lowest for more than 30 years... Should there be another shock, then prices will set another series of historic highs well above $50.”
Many Asian stock markets reeled yesterday from the impact. Japanese share prices closed 0.27 percent lower, Taiwan fell 0.67 percent and the Philippines ended 0.23 percent weaker. Singapore’s Straits Times Index shed 4.75 points to finish at 1,974.35.
Economists said high oil prices also threaten to slow Asia’s growth, raise consumer prices and dampen domestic consumption. Falling private sector spending, especially in a large market like the United States, will dampen demand for Asian exports.
Clark Winter, the chief global investment strategist of Citigroup Private Bank, said in a recent report that the economic growth in China and India had stoked “an almost insatiable demand” for oil and gasoline to keep cars, trucks and industries running.
China, for example, is forecast to have 140 million cars on its roads by 2020, implying a seven-fold increase in gasoline consumption from the current 383 million barrels a year, he wrote last week.
