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.
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