Costs to go up as oil prices breach US$100 per barrel mark briefly

Channel NewsAsia 3 Jan 08;

SINGAPORE: For the first time, world oil prices briefly crossed the psychologically important level of US$100 a barrel on Wednesday. Analysts attribute the surge to tight supplies and continued strong demand.

One analyst said consumers are being hit by a double whammy with the high oil prices and the recent spike in food prices.

Song Seng Wun, CEO and Regional Economist, CIMB-GK Research, said: "I suppose if it had been any other time, say six months ago, it probably would not have meant that much because crude oil prices had been going up steadily for the last five years. It only became a lot more significant now, coupled with the inflation in food prices.

"We have seen food prices go up significantly in the second half of last year and food prices, unfortunately, will stay high. CPI (consumer price index) may go up 2 percent or even beyond 5 percent year-on-year. Young Singaporeans may not have seen that kind of inflation in a long, long time."

"Even a small amount of inflation – such as what we are seeing today – can have a big impact on what you can do with your money. For example, S$100 today is reduced to just S$88 spending power by 2010 if we experience an inflation rate of 4 percent. And if that inflation rate is moved from 4 percent to 8 percent, that S$88 is reduced to just S$77 in 2010," said Gary Harvey, CEO of Ipac Wealth Management Asia.

The solution, however, is basic – see what you are spending on and budget carefully to stretch that dollar further.

While rising fuel and food prices will continue to have an upward impact on one's day-to-day costs, economists said there is a slight silver lining in that prices for consumer goods such as flat-screen TVs and mobile phones have remained unchanged or have even gone down.

This is because big manufacturers have managed to keep the prices down. But economists said that may not necessarily be the case in 12 months' time, if material or wage costs continue to climb.- CNA/so

That US$100 spike (and what it means to you)
Today Online 4 Jan 08;
Record oil prices fuel worries of hikes in food, transport prices here

A REBEL attack on an oil centre in Nigeria, Africa's biggest oil producer. Rough weather in the Gulf of Mexico, which slowed down the country's oil exports.

These two unrelated acts of man and nature thousands of kilometres apart came together on Wednesday to send shivers down the spine of Singaporeans — that prices of everyday items will rise again.

Oil traders found in the two events the perfect excuse to push prices further north — to the point of briefly touching the once unfathomable price of US$100 a barrel.

Although it was only for a brief moment, many analysts expect more roiling in the markets, with some energy specialists expecting not only US$100 oil, but US$120 oil in the coming year.

All eyes will now be on the Feb 1 meeting of the Organisation of Petroleum Exporting Countries (Opec), although oil officials are already playing down the prospect of any further rise in output to help ease prices. And with oil priced in US dollars, some analysts believe the big-producing nations may have an incentive to keep prices high to make up for the decline in value of the greenback.

In Singapore, consumers and businesses can expect even more price hikes in the next few months — in everything from imported raw materials, imported foodstuff such as vegetables, poultry and dairy products to transport fares, electricity bills and fuel surcharges.

Citigroup economist Chua Hak Bin told Today: "It wouldn't be a surprise that if oil prices keep on rising, some of the costs would go up. Earlier on, the MRT fare hike was rejected. But if the oil prices keep on rising, there is a chance that some of these increases could keep on happening."

Dr Chua also does not rule out inflation reaching 6 per cent in the first quarter.

"Minister Lim Hng Kiang indicated that inflation may hit 5 per cent in January. But with inflation already at 4.2 per cent in November — and taxi fares that shot up in December, electricity tariffs going up about 6 per cent and HDB assessment value going up 20 per cent — we think there is a real likelihood of inflation reaching 6 per cent."

But as inflation looks set to head north, stock prices seem to be southward-bound if the performances of key markets in the past 48 hours are any indication.

Wednesday's record oil prices, along with unexpectedly weak US manufacturing data, sent Wall Street into a spin — and Asian markets followed suit, with most shares down at yesterday's close.

The Straits Times Index dropped 64.16 points, or 1.9 per cent, to close at 3,397.06 — the biggest drop since Dec 17.

Gold, however, soared to an all-time high of more than US$866 an ounce as investors rushed to buy the safe-haven asset.

With oil prices expected to stay high — no thanks to continuing high demand from booming economies such as China and India — analysts remain divided over its impact on Asian economies.

Some analysts pointed out that oil prices have risen amid a global boom and the region's economies have so far been resilient.

Businesses, they noted, are far more fuel efficient than they were during the oil shock of the 1970s and Asian countries have tried to reduce their dependence on oil.

"The data we've seen through the third quarter is that the global economy has continued to grow strongly even as oil prices rose to these levels," Mr David Cohen, a regional economist with Action Economics in Singapore, told Associated Press.

"The question is, at what point does it become overwhelming?" he added.

Mr Adrian Loh, an energy analyst with Merrill Lynch in Singapore, said oil prices would need to be sustained above US$100 for more than six months before it affects consumer behaviour.

Ironically, an economic slowdown may be just what's needed to drive oil prices down from their stratospheric levels.

If there is a recession, "oil prices will definitely go down because demand will go down and the speculators who have come to see oil as an investment play will take a dip as a leading indicator — they will jump first and that will cause a meltdown", Mr Fadel Gheit, a senior energy analyst for Oppenheimer and Co, told the New York Times. — Agencies

Asian consumers fear US$100 oil will add to daily struggle
Channel NewsAsia 3 Jan 08;

SINGAPORE - From a Beijing cab driver to a vendor selling food wrapped in banana leaves at a Jakarta roadside, life for ordinary people in Asia is set to get even tougher after the price of oil hit 100 US dollars.

Consumers across the region griped about the rising cost of fuel after crude oil hit 100 dollars per barrel for the first time during trading in New York on Wednesday.

"What can I do? I just suffer," 30-year-old businesswoman Sirintra Vanno complained at a petrol station in Bangkok. "I have no choice but to drive every day to go to work because public transportation services are so limited."

Nena, an elderly woman who sells meals wrapped in banana leaves by the roadside in Jakarta, said higher fuel prices had dramatically cut her daily income over the past few months from 60,000 rupiah to 35,000 rupiah.

"I have to buy things at higher prices now but I cannot raise the price of food every time kerosene rises," she said.

Hery, 54, a motorcycle taxi driver in Jakarta, said he feared rising oil prices would lead to cuts in government subsidies for the cooking fuel, which costs 6,000 rupiah (64 cents) per litre.

"It will be out of reach" if the price goes higher, he said.

Australian truck driver Doug McMillan said the rising oil price was having a devastating impact on his business, which uses trailers to deliver farm equipment across the country's vast Outback.

McMillan said fuel costs used to account for about one-third of his expenditure but were now 55 percent -- and rising.

"By the time you pay your drivers' wages, there's no profit left," he told AFP by phone as he drove one of his rigs.

Song Haisheng, a 30-year-old taxi driver in Beijing, said he too was under pressure, adding he and many of his colleagues were barely surviving at current petrol prices.

"In order to save fuel, many taxi drivers now would rather park and queue along the street like this than cruise blindly as we used to do in search of customers," he said as he queued outside an office building in Beijing.

The Chinese government caps the prices at which refiners can sell their products, partly shielding consumers from the immediate impact of global oil spikes.

But it allowed refiners to raise domestic fuel prices by roughly 10 percent in November and ordinary Chinese now fear more hikes, with even the more well-off feeling the impact of record fuel prices.

"Nowadays I try not to travel by car when going on business trips and instead opt for the train as much as possible," said Huang, 42, who would only give his surname as he waited for his company driver to pick him up in Beijing.

On the streets of Manila, taxi driver Mario Agbayani was also worried.

"If pump prices continue to rise, I will be forced to look for another job because what I would be earning in a day would not be enough to even buy petrol," the 40-year-old father of three said.

He spends 12 hours a day on Manila's chaotic roads but takes home only 500 pesos (about 12 dollars) after expenses.

Japanese businessman Narihisa Murakami, 38, said in Tokyo that ordinary folks were powerless in the face of rising fuel prices, calling them "a real problem" and adding that fuel economy had become key when buying a car.

In Singapore, freelance motorcycle courier Irwan Shah, 45, said he tried to save by gassing up across the Causeway in neighbouring Malaysia, where petrol costs half the price it does in the city-state.

Another Singaporean courier, Surahman Ridwan, 52, resorted to a more drastic solution. "I had to cut down on cigarettes just to pay off my petrol costs more comfortably," he said. - AFP/ir

Oil prices may head to US$120 in next few months
Straits Times 4 Jan 08;

They could then fall back to about US$80 due to slowing external demand, say experts
By Yang Huiwen
ANALYSTS offered a stark warning yesterday after oil briefly touched the US$100 a barrel mark - it's going to get worse before it gets better.

They believe crude oil prices will keep rising over the next few months, driven by high demand and concerns over supply disruption and political tensions in oil-producing countries such as Nigeria, Iran and Algeria.

Speculative trading by hedge funds, thought to be behind the jump to US$100 on Wednesday, will also continue to play a part.

But economists believe prices will ease by the end of the year, while Singapore's rising dollar should also take some of the sting out of pricier crude.

CIMB-GK economist Song Seng Wun said: 'US$100 a barrel looks like an impressive number. That's higher than any time before, but it's probably not going to be a one-way street.'

He expects oil prices to average US$80 a barrel by the end of this year.

It is just the next few months that will test the nerves of economists, governments and consumers already shaken by the 57 per cent rise in prices last year.

'There will be a short-term propensity for prices to overshoot,' said OCBC Bank economist Selena Ling, who added that the high prices reflect the economic and political risks being faced across the globe.

'There is about a US$10 to US$15 risk premium on crude oil prices now,' she said.

She pointed out that, as the Organisation of Petroleum Exporting Countries (Opec) seems reluctant to ramp up production, prices could easily shoot up to US$110 a barrel over the next month.

Singapore-based economist David Cohen at Action Economics sees prices going even further north: 'US$120 a barrel could be well within reach from now till the middle of the year.

'Weakness in the US dollar has aggravated the pressure on oil prices, which are quoted in US dollars, in recent months.'

He added that continued softness in the greenback and general inflation fears will give oil prices a further upward nudge.

But it is not all a doomsday scenario. The possibility of an economic slowdown in the United States, the world's largest importer of oil, and easing growth in oil guzzlers China and India could suck off some of the steam.

Prices eased off in September and October due to heightened concerns about a US recession, said Mr Cohen.

Ms Ling, who forecasts oil will ease to about US$85 a barrel by year-end, added: 'It will be very hard to sustain this upward trend in the longer run, with the US, Europe and Japan slowing down. It will be very hard for just China and India to sustain the high prices.'

Standard Chartered economist Alvin Liew echoes her sentiments and predicts prices will go even lower, to an average of US$75 a barrel by the end of the year.

Mr Liew added there are other undetermined factors in play that could swing prices either way, including geopolitical tensions and the levels of speculative money in the market.

While higher oil prices and rising inflation generally batter consumer sentiment and constrict spending, the domestic picture is slightly rosier than it might seem.

'A strong Singapore dollar has somewhat compensated for higher oil prices,' said Mr Song. 'A lot will depend on how much further the Singapore dollar will strengthen to contain imported inflation.'

The strong economy has translated into more jobs and greater income growth for the past year, which have allowed people to live with the higher costs, he added.