Drop in oil prices to be short lived: ADB
16/9/2008 18:03
Developing Asia will face a prolonged period of high and volatile oil
prices that will temper growth and force governments around the region to make
policy adjustments to encourage increased energy efficiency among consumers,
said the Asian Development Bank (ADB) today.
The recent drop in oil prices
will be short lived and the region's explosive growth will put further pressure
on global oil supply and keep prices elevated above US$100 a barrel until at
least 2020, said the Manila-based bank in the Asian Development Outlook 2008
Update.
In a comprehensive study of the trajectory of future oil prices and
the implications for developing Asia, the latest report warns that Asia, as a
net importer of primary energy, will be hit hard by a prolonged increase in the
price of oil.
"High oil prices are in Manila to stay, and the sooner that
developing Asia wakes up to this reality the better," ADB Chief Economist Ifzal
Ali said in a press release.
"The past few years of robust growth in the face
of rising oil prices should not delude us into believing that Asia's growth
prospects will be immune from the effects of expensive oil. Looking ahead, a
prolonged elevation of oil prices would almost certainly have an adverse impact
on Asia's future growth," he added.
The report notes that the current oil
price surge, which began in 2003, is fundamentally different to previous oil
shocks in the 1970s, which were caused by temporary supply disruptions. This
time, it says, high oil prices have been mostly driven by surging demand and the
inability of suppliers to keep pace.
Developing Asia's breakneck growth and
large appetite for imported energy has already had a significant impact on
global oil prices, and the report predicts that the region, together with the
Middle East, will continue to place upward pressure on oil prices into the
future.
A reduction in surplus oil capacity caused by increased demand,
alongside financial speculators betting on higher oil prices, will lead to even
greater price volatility in the oil market, according to the report.
While
the report forecasts that higher output and weaker demand will push down prices
slightly in the short term, as is now happening, prices will start to soar again
in the next decade due to a sustained gap between supply and demand.
Ali said
that the report's long-term oil forecasts should sound a warning to developing
Asia's policymakers.
"Developing Asia's oil consumption is three times as
high as its oil production and so it cannot afford to ignore the findings of
this report. Failure to act today will have larger costs tomorrow," said the
economist.
"Painful but necessary adjustments will have to be made in the
areas of macroeconomic policy as well as energy policy. Above all, policymakers
should use a carrot-and-stick approach of subsidies and taxes to encourage the
region's firms and consumers to use oil more efficiently. A welcome trend in
this respect is the phase-out of fuel subsidies and price control already
underway in the region, " he added.
Xinhua
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