Poor countries vulnerable to oil price hikes — ADB

Developing countries are highly vulnerable to economic pressures arising from higher oil prices, the Asian Development Bank (ADB) said.

In a regular publication called Asian Development Outlook (ADO) which was released yesterday, ADB said the risk is greater in South Asian countries which are suffering from huge current account deficits.

"Prospects for world oil prices remain subject to considerable uncertainty arising from both supply and demand factors," the ADB said.

Local oil players remain confident that oil prices will remain stable until the May elections this year. Energy Secretary Jose Isidro Camacho said oil price stability will be dependent on market forces since the local industry has been deregulated.

The decision of the Oil Petroleum Exporting Countries (OPEC) to reduce production by 1.5 million barrels in February and another one million barrels last month is likely to push oil prices up.

The ADB noted that the OPEC’s decision to cut down on production will bring oil prices within a target of $22 to $28 per barrel. Prices averaged $24 to $30 a barrel in the first two months of the year.

According to ADB, the supply of oil will be highly dependent on the performance of the US market, which is likely to grow more slowly this year.

But, ADB pointed out that the impact of the expected slowdown in the US economy on the supply of oil in the region will be offset by the oil companies’ move to replenish depleted stocks of oil that were drawn to their lowest levels since the 1970s.

"Barring supply disruptions caused by the ongoing tensions in the Middle East, a moderate decline in oil prices is assumed, in line with oil futures prices," ADB said.

It said industrial countries are now less vulnerable to oil shocks because of their reduced dependence on imported oil with manufacturing activities supplanted by services, information, communications and technology sectors which have less demand for fuel.

It further noted that with manufacturing relocated to lower-cost developing countries, and as relatively few of them are oil producers, "they are likely to suffer more from an increase in oil prices than industrial countries.

Higher oil prices, ADB said, are unlikely to be a cause of concern for Hong Kong, South Korea, Singapore, and Taiwan as well as for Southeast Asian countries which enjoy large current account surpluses and subdued inflation.

"However, for some of the South Asian countries running large current account deficits, further deterioration of their external accounts and output losses due to higher oil prices could have potentially serious defects," it said.