(OP)inions Oil speculation

March 21, 2022 

The selloff in the global oil market might bring a sense of relief to Asia‘s policy makers: So this isn’t 1973, after all. 

Back then, prices almost quadrupled in three months and then just kept rising. This time around, Brent crude zoomed to about $128 a barrel, but fell equally dramatically. Speculative bets on a renewed surge are unwinding— as prices bob around the $100-a-barrel range. Yet, policy makers and investors shouldnt be too complacent.  

For starters, as economists atAustralia & New Zealand Banking Group Ltd. point out, government budgets in Southeast Asia and India have assumed an average oil price of between $65 to $75 a barrel for the year, a lot lower than where the market is now. Malaysia and Indonesia, which are net energy exporters, will find it relatively easierto subsidize pump prices. Net importers, however, may struggle to be as generous, for they may need to cut back on developmental spending. 

It makes sense to protect household consumption because domestic demand is still short of pre-pandemic levels. It is particularly weak in tourism-dependent Thailand. But then, the virus has also pushed up public debt: Consumers cant be spared entirely. At their recent highs, passing through a $40-a-barrel increase in crude prices to the local economy would have meant a pickup in inflation: from 1.75 percentage points in Thailand to about 1.25 percentage points in the Philippines and India, according to ANZ. 

However, somewhat cooler global energy prices may not necessarily take away the inflationary pressure. The reason is China.  

OnePro Special Analyst

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