APIC ’08: High crude oil could sink economy

27 May 2008 20:29  [Source: ICIS news]

SINGAPORE (ICIS news)--Global commodity markets are performing normally, but high crude oil prices could potentially “sink the economy," a consultant said on Tuesday.

“The problem is in oil. Now we have a spike that is higher than anything we have ever seen, [and] there is no reason to believe that it is coming down anytime soon,” said Fred Peterson, president of Probe Economics, a US chemical consultancy. Peterson was speaking at the Asian Petrochemical Industrial Conference (APIC).

Strong growth trends in emerging markets such as India and China, the depreciation of the US dollar against Asian currencies and speculative activities by hedge funds were some of the possible contributing factors for rising crude oil costs, he noted.

Moreover, government-subsidised oil products in countries such as China also encouraged end-users to consume more, resulting in an increase in total demand and higher prices.

Markets in Singapore, Taiwan and Hong Kong will be most negatively-impacted by squeezed margins, as they rely heavily on oil imports.

At the same time, those nations export most of their domestic petrochemical output, leaving them vulnerable to lower downstream prices and demand, backed by the softening US growth and consumption trends.

As for the US, the weak economic outlook, high inflation and rising unemployment rates have lead to a fall in domestic retail sales and consumption, Peterson said.

Countries such as China and India were expected to remain largely unscathed by the low-growth trends in US, as their markets continue to be predominantly driven by domestic demand and growth, he added. 

Peterson was speaking at the APIC 2008 which runs from 27-28 May and is hosted by the Singapore Chemical Industry Council.

ICIS and The Chemical Daily have produced an official 84-page special publication on Asian petrochemicals for the APIC event.
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By: Serene Cheong
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