Brighter growth prospects for Asia over the next 12 months have raised hopes that regional economies will cope should oil prices again breach US$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 US$70.85 reached last August following Hurricane Katrina in the US.
At one time US$70 was 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.
"US$70 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," he said.
Middle East tensions, consumer demand and institutions which increasingly see oil as an investment risk pushing the cost of crude to beyond US$90 a barrel, according to some analysts.
BT Pension Scheme plans to invest ?1 billion (US$1.78 billion) 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. It's a big one we cannot ignore," Emori said.
That prospect, plus possible sanctions against Iran and unparalleled growth in markets like China and India, has Emori forecasting oil prices of US$90 to US$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 US$90 to US$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 world growth, but again the distinction between higher prices resulting from geo-political shocks as opposed to resulting from growth in global demand should be made," he said.
Australian growth has been clipped by oil. But Commsec commodities strategist David Thurtell said the outlook remained solid amid surging commodity prices and a stable housing market.
"I don't think people are hurting too much," he said.
Indonesia is better placed to survive another shock after substantially reducing expensive fuel subsidies which bled government coffers and caused a mini-currency crisis when oil last hit US$70.
Standard Chartered Bank economist Fauzi Ichsan said recent fuel price hikes had caused a fall in demand. Inflation is now expected to ease, but a target of 6 percent growth this year is being maintained.
"For 2006, the impact of oil prices is not too big. Indonesia's balance of payments is improving," he said.
Australia and Indonesia are big energy producers, but India, China and Japan are major importers and are more acutely affected by pricing.
"Oil prices are high, but they are showing signs of relative stability," said Masaaki Kanno, chief economist at JP Morgan Securities Asia.
RETHINK? The defense ministry and Navy Command Headquarters could take over the indigenous submarine project and change its production timeline, a source said Admiral Huang Shu-kuang’s (黃曙光) resignation as head of the Indigenous Submarine Program and as a member of the National Security Council could affect the production of submarines, a source said yesterday. Huang in a statement last night said he had decided to resign due to national security concerns while expressing the hope that it would put a stop to political wrangling that only undermines the advancement of the nation’s defense capabilities. Taiwan People’s Party Legislator Vivian Huang (黃珊珊) yesterday said that the admiral, her older brother, felt it was time for him to step down and that he had completed what he
Taiwan has experienced its most significant improvement in the QS World University Rankings by Subject, data provided on Sunday by international higher education analyst Quacquarelli Symonds (QS) showed. Compared with last year’s edition of the rankings, which measure academic excellence and influence, Taiwanese universities made great improvements in the H Index metric, which evaluates research productivity and its impact, with a notable 30 percent increase overall, QS said. Taiwanese universities also made notable progress in the Citations per Paper metric, which measures the impact of research, achieving a 13 percent increase. Taiwanese universities gained 10 percent in Academic Reputation, but declined 18 percent
UNDER DISCUSSION: The combatant command would integrate fast attack boat and anti-ship missile groups to defend waters closest to the coastline, a source said The military could establish a new combatant command as early as 2026, which would be tasked with defending Taiwan’s territorial waters 24 nautical miles (44.4km) from the nation’s coastline, a source familiar with the matter said yesterday. The new command, which would fall under the Naval Command Headquarters, would be led by a vice admiral and integrate existing fast attack boat and anti-ship missile groups, along with the Naval Maritime Surveillance and Reconnaissance Command, said the source, who asked to remain anonymous. It could be launched by 2026, but details are being discussed and no final timetable has been announced, the source
CHINA REACTS: The patrol and reconnaissance plane ‘transited the Taiwan Strait in international airspace,’ the 7th Fleet said, while Taipei said it saw nothing unusual The US 7th Fleet yesterday said that a US Navy P-8A Poseidon flew through the Taiwan Strait, a day after US and Chinese defense heads held their first talks since November 2022 in an effort to reduce regional tensions. The patrol and reconnaissance plane “transited the Taiwan Strait in international airspace,” the 7th Fleet said in a news release. “By operating within the Taiwan Strait in accordance with international law, the United States upholds the navigational rights and freedoms of all nations.” In a separate statement, the Ministry of National Defense said that it monitored nearby waters and airspace as the aircraft