Thailand Feeling The Squeeze As Global Oil Prices Climb

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TREASURY VIEW

Thailand feeling the squeeze as global oil prices climb

Padej Piroonsit

Bangkok

Concern is growing over the rising price of oil and the effect it will have.

BANGKOK: -- Thailand, as an oil importing country, is vulnerable to any hike in energy prices, which have a knock-on effect on production and transportation costs. Though the government has tried to mitigate the effects by reducing tax and other levies, the energy price is still moving upwards in accordance with the world market. So the question is, how high will the crude oil price go?

The price of oil, like any other product, is determined by the law of demand and supply. In theory, the two factors that drive prices up are higher demand and shortage of supply. But what are the facts in oil's case? The International Energy Agency (IEA) estimates that the global demand of 90 million barrels per day will increase by only 0.9 per cent in 2012, or around 0.8 million barrels per day. Factors affecting demand for oil this year are the economic slowdown in Europe, the stronger than expected of economic recovery in the US, the shutdown of some nuclear power plants in Japan and the strong demand growth in Asia. On the supply side, total global supply is also 90 million barrels per day, with OPEC output around 30 per cent of the total. Oil supply from the first quarter 2009 to the first quarter of 2012 has increased steadily, from 85 million to 90 million barrels per day, while demand has risen at a slower pace. So, given the figures, why has the oil price increased from its low of US$40 per barrel in early 2009 to $110 in early 2011 and then from a low of $75 in October 2011 to $105 now?

There are several reasons. First, the uprising in the Middle East has brought worries over a possible shortage of supply. Moreover, the recent tension between the US and Iran over the latter's nuclear programme has heightened concern that oil-transport routes will be blocked. The second reason stems from oil's status as a trading commodity. At a time when interest rates are low and liquidity is plentiful, it is easy to borrow money to trade in commodities like oil. The tension in the Middle East has encouraged traders to hold long positions in oil by buying oil futures and maintaining cash margins rather than settling in full. These explanations for the oil-price rise suggest it will be short-term, and lead us to expect the price will come down eventually when traders decide to offload their positions. The question is, when will that offloading happen and how high will the oil price go before they decide to sell? Some economists have suggested that governments should impose restrictions on oil trading because it skews the workings of demand-and-supply. Excessive trading lately has increased market volatility and obviously pushed the oil price upward.

Whilst it is difficult to predict the level or force of any eventual oil-price drop, we need to admit that higher prices in the meantime would increase the risk of higher inflation. They would also leave people with less money to spend on other things after settling their higher energy bills.

In its latest meeting, the Monetary Policy Committee left the policy rate unchanged at 3 per cent. But watch this space. We might have seen the interest-rate cycle hit rock-bottom, with only one way to go.

Padej Piroonsit is head of Treasury Sales at CIMB Thai Bank. Views expressed are his own.

-- The Nation 2012-03-27

[laurentbkk]

Well , Thailand just follow the other countries .... nothing to do against those rise in prices. We just have to use more public transport (that was a jocke) ...and avoid to take the car for 50m drive to buy somtam .....(that was another jocke) .

[daiwill60]

It may help if countries such as Thailand weren't involved in hoarding the stuff either.

http://www.bbc.co.uk/news/business-17511050

[exeter]

THere is a report on the BBC website, as mentioned which suggests that the price is rising because some countries are hoarding oil, the countries names as suspects are South Africa, India, China and Thailand.

[TantraMantra]

It may help if countries such as Thailand weren't involved in hoarding the stuff either.

http://www.bbc.co.uk...siness-17511050

If the USA and Israel would stop their threats against Iran then these countries would not need to hoard and prices could go down. Meanwhile it makes sense that they hoard to ensure their own supply.

[sparebox2]

Don't worry. Thailand will be the next Kuwait, with lots of crude oil under her capital.

The Germans are drilling it right now.

[Chopperboy]

Don't worry. Thailand will be the next Kuwait, with lots of crude oil under her capital.

The Germans are drilling it right now.

Usual Thai wishful thinking! The company thats doing the drilling is only boring one hole to fulfill their obligation under the original contract which dates back years - they know there is no oil there. Thailand is very limited in natural resources, one could add in human as well.

[how241]

Higher oil prices will push up the price on most everything.

[sparebox2]

THere is a report on the BBC website, as mentioned which suggests that the price is rising because some countries are hoarding oil, the countries names as suspects are South Africa, India, China and Thailand.

Thailand? Is BBC talking about Rock Oil or Palm Oil?

Edited March 27, 2012 by sparebox2

[Chopperboy]

THere is a report on the BBC website, as mentioned which suggests that the price is rising because some countries are hoarding oil, the countries names as suspects are South Africa, India, China and Thailand.

Thailand? Is BBC talking about Rock Oil or Palm Oil?

Its talking about mineral fuel oil, not palm oil.

Edited March 27, 2012 by metisdead
Repaired the reply.

[thaihome]

Thailand is very limited in natural resources, one could add in human as well.

Except for the tin, rubber, natural gas, tungsten, tantalum, timber, lead, fish, gypsum, lignite, fluorite, arable land.

TH

[Chopperboy]

Thailand is very limited in natural resources, one could add in human as well.

Except for the tin, rubber, natural gas, tungsten, tantalum, timber, lead, fish, gypsum, lignite, fluorite, arable land.

TH

We are talking about ones of significance (i.e. OIL) not minor resources/ deposits that are everywhere. For example Thailand has some natural gas but is still one of the largest importers from Burma. Farmed output can't be counted as natural resources either.

[marquess]

I think what needs to be born in mind here is the increased in taxes on the part of the government. Five years ago the price went to $147 per barrel and at at that time the price at the pumps was about what they are now. Also didn't I read a few months ago that there was going to be an increased in the amount that the petrol station was allowed to collect for each litre, which according to the minister at the time was to reflect the increased services that one is supposed to find at a petrol station. Various governments are using the sabre rattling of the Western powers against Iran as an excuse to soak the population again! It is as though the public are being psychologically conditioned to accept a permanent 40 Baht plus price.

[metisdead]

An off topic post has been removed. Topic is about global oil prices, not rice paddies.