Asian oil markets in vicious cycle

Bob Moon Feb 29, 2008

TEXT OF STORY

Bob Moon: It’s not supposed to happen this way. For weeks now, there’s been a steady increase in U.S. crude oil supplies, and the slowing economy ought to be pulling down petroleum demand. So why did prices briefly hit $103 a barrel for the first time ever on Asian markets today?

It’s not about the oil, it’s about speculation. And the weak dollar has investors ignoring all those other fundamentals. In Hong Kong, Financial Times correspondent Raphael Minder tells us this is causing a vicious cycle over there.

Raphael Minder: It’s certainly not good news. Asia’s very dependent on imports, and so there’s already a lot of inflationary issues. You have higher food prices, higher oil prices, and economies are growing very, very quickly in places such as Vietnam and China.

Moon: And this is coming at a time when these countries are really under pressure to hold the line on prices, isn’t it?

Minder: Exactly. I mean, I think the system is one of heavy subsidies, and these people have access to basic items only thanks to subsidies.

Moon: I see some of the irony here in the fact that much of the pressure on oil prices is happening because of the weak dollar, which is also causing problems in terms of what it will buy overseas.

Minder: That’s right. I mean, the dollar’s extremely weak, and that has a direct impact on Asia.

Moon: Do we see any end in sight to this spiral?

Minder: That’s very difficult to say. There’s very little optimism as far as the dollar’s concerned. On the oil side, I would say the hope, if you like, is that some of the oil projects that are being developed in Asia can start yielding more. But again, the problem is the time lag. I think it’s just going to take a long time. To give you an example, Vietnam today announced its first oil project. But production schedule would be 2010.

Moon: Well, we can hope. Raphael Minder is Financial Times correspondent in Hong Kong. Thank you for joining us.

Minder: Thank you.

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