Impact of OPEC’s oil agreement on Asia-Pacific economies

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By Rajiv Biswas, Asia-Pacific Chief Economist, IHS Global Insight

  • The OPEC deal has set a lower OPEC production target that reduces the production by 1.2 million barrels per day. The immediate impact effect has been to push up world oil prices.
  • This is positive for Asia’s oil and gas exporting countries, including Malaysia, Brunei and Myanmar. While this can be negative for oil importing countries, the overall negative impact is expected to be relatively modest if the increase in oil prices due to the OPEC deal is contained to around USD10 per barrel or lower over the next few months. Many of Asia’s largest economies are oil importers, including Japan, China, South Korea, Thailand, the Philippines and India. Even Indonesia, which recently rejoined OPEC, is a net oil importing nation albeit still net exporter of LNG.
  • The negative impact on GDP growth in Asian oil-importing countries is expected to be low with the upward impact on inflation, which is also expected to be moderate for large oil importers, such as India and Thailand.
  • The Asian countries that are relatively dependent on oil imports, such as India and Sri Lanka, are most vulnerable to higher oil prices due to the high share of oil in their total import bill.
  • Higher oil prices will have varying impact effects on individual industry sectors. Industries for which oil comprises a significant proportion of input costs, such as airlines and road transportation companies, will face greater negative impact effects. However, this needs to be seen within the overall context of world oil price changes since 2014. Even if Brent crude averages USD52 in 2017, this would still be less than half the price of oil at the beginning of 2014.
  • Clearly the upstream oil industry will be helped by any sustained improvement in oil prices. However, downstream industries, such as oil refining and chemicals, will face higher crude oil input costs. However, again, if the average increase in world oil prices in 2017 is USD10 or less, the overall negative impact on the industrial sector and households should be moderate.

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Source: The Insiderstories
Impact of OPEC’s oil agreement on Asia-Pacific economies

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