News Analysis: Impact of recent oil price drop to vary in Asian economies
Rosalinda L. Orosa (The Philippine Star) - October 24, 2014 - 10:00pm

SINGAPORE (Xinhua) - While the price of crude oil has staged a slight rebound following a sharp decline since last month, analysts believe that oil price will hover below $100 per barrel for a while but its impact on Asian economies would vary.

West Texas Intermediate (WTI) crude had held above $82 level after falling below $80 a barrel for the first time since June 2012 last week. Brent crude also settled above $85 per barrel in Europe as of Friday. Still, oil price is more than 10 percent below late-August levels.

All eyes are now on the upcoming Organization of the Petroleum Exporting Countries (OPEC) meeting on Nov. 27 to determine whether major producers such as Saudi Arabia will limit production or continue to boost output to regain market share from key competitors.

As the world's second-biggest oil-consuming country, China is often cited as the main cause of oil price swing. With market tendency to equate China's strong economic growth to stronger fuel demand and vice versa these days, China is certainly one of the major beneficiaries from lower oil price. But there are also skeptics refuting this correlation between China's economic performance and oil price.

Nomura Research attributed the recent oil price drop primarily to the strength of the US dollar. There is very little evidence that China's growth has been the main driver behind significant up and down moves in crude prices over the past year.

In the past fortnight, for instance, data showed China's manufacturing and non-manufacturing purchasing managers'index (PMI) both held firm above 50.0, yet oil price suffered the steepest decline.

For the rest of Asia, analysts believed that the impact of lower oil price would vary among the emerging Asian economies. India, one of the largest importers of oil in the region, is set to benefit significantly from the plunge in crude oil price.

If the decline in crude oil is sustained, HSBC Global Research forecast India's consumer price index (CPI) can be lowered by 1.8 percentage points over the next 12 months, and its current account deficit kept under 2 percent of gross domestic product (GDP) which will all be conducive to economic growth.

Within the Association of Southeast Asian Nations (ASEAN), Morgan Stanley Research said Thailand would stand to gain most from falling oil prices as its dependence on road rather than rail transport and the high proportion of oil in its energy consumption basket mean that its oil intensity is high. This would be followed by Indonesia, Singapore and then the Philippines, which are also net oil importers.

Morgan Stanley estimated that all else being equal, every 10 percent fall in oil prices would reduce the oil trade deficit or oil burden by 0.9 percent of GDP in Thailand, 0.3 percent in Indonesia and Singapore and 0.2 percent in Philippines. The oil price drop would also mean that Malaysia's oil trade surplus would be cut by 0.03 percent of GDP.

While oil price decline is generally disinflationary for ASEAN, the extent of disinflation would differ among member countries. For the Philippines and Singapore, where CPI energy weights are relatively lower, retail fuel prices are marked to market and every 10 percent fall in oil prices would reduce CPI by 15 basis points and 24 basis points respectively. As for Malaysia and Indonesia, falling oil prices would reduce their subsidy burden.

Morgan Stanley estimated that every 10 percent fall in oil prices would reduce fuel subsidy expenditure by 0.4 percent of GDP in Indonesia and 0.5 percent of GDP in Malaysia. Both Malaysia and Indonesia are oil-producing countries.

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