Oil prices are poised to break through US$80 per barrel and Asia’s demand is at a record, pushing the cost of the region’s thirst for crude to US$1 trillion this year, about twice what it was during the market lull in 2015 and 2016.
Oil prices have gained 20 percent since January to just shy of US$80 per barrel, a level not seen since 2014.
With the US dollar also growing stronger, concerns are rising that economies could take a hit, especially in import-reliant Asia. Surging costs could have an inflationary effect that would hurt consumers, as well as companies.
“Asia is most vulnerable to an oil price spike,” Canadian investment bank RBC Capital Markets said in a note this month, after oil prices hit their highest since November 2014.
The Asia-Pacific region consumes more than 35 percent of the 100 million barrels of oil the world uses each day and the region’s global share is steadily rising, industry data showed.
Asia is also the world’s smallest oil producing region, accounting for less than 10 percent of output.
US bank Morgan Stanley this week said that diesel use contributes 10 to 20 percent to cash costs for miners, while oil makes up between 4 percent and 50 percent to the cost of power generation, depending on a company’s or country’s fuel mix.
“A rising oil price therefore shifts the entire cost curve higher,” it said.
China is by far Asia’s — and the world’s — biggest importer of oil, ordering 9.6 million barrels per day last month. That is almost 10 percent of global consumption.
At current prices, this amounts to a Chinese oil import bill of US$768 million per day, US$23 billion per month and US$280 billion a year.
Other Asian countries are even more exposed to rising oil prices. Most damage would be done to countries like India and Vietnam, which not only rely heavily on imports, but where national wealth is not yet large enough to absorb sudden increases in fuel costs.
“Poorer countries with limited borrowing capacity may face financing difficulty amid higher import bills,” RBC said.
Unless fuel is heavily subsidized, households and businesses in poorer countries are also more vulnerable to rising oil prices than they are in wealthier nations.
In developing economies like India, Vietnam or the Philippines, fuel costs eat up 8 to 9 percent of an average person’s salary, compared to just 1 to 2 percent in wealthy countries like Japan or Australia, Reuters research and figures from statistics portal Numbeo showed.
The surge in oil prices has a particularly big impact on transportation and logistics companies.
Some firms have said they will pass on any higher costs to consumers, while others said that if they burden customers with higher costs, they might lose accounts.
Given the economic costs and the region’s reliance on imports, economists said it is time for Asia to limit its exposure to oil.
“It is very important for Asia to reduce its oil dependency and increase its energy efficiency ... to protect itself from future oil shocks,” RBC said.
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