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Oil price rise: S&P blames high consumption in Asia

Oil price rise: S&P blames high consumption in Asia
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First Published: Wed, Jul 02 2008. 11 46 PM IST

Updated: Wed, Jul 02 2008. 11 46 PM IST
Mumbai: Global credit assessor Standard and Poor’s (S&P) has blamed the high energy consumption in Asia, led by China and India, for the surge in oil prices. S&P says oil prices will decline in the short run, but the trend is irreversible longer term because Asia’s economic growth will keep demand for oil high.
“The oil output is rising only slowly, in part because so much of the world’s oil supplies are now in the hands of national oil companies, which have less incentive to raise production,” says David Wyss, S&P’s chief economist, in a research note released on Wednesday.
Full throttle: A traffic scene in Delhi. Despite the jump in oil prices, demand for energy continues to rise, especially in India and China. (Ramesh Pathania / Mint)
Oil prices have touched a record high of $143 (Rs6,192) a barrel. Oil futures are rising because of speculation, says Wyss, but adds it is not likely to have an impact on spot prices.
“Every major region saw higher consumption, with Asia up the most and Europe the least,” the economist says. “With China accounting for more than half the total world increase, it is hard to see much slowdown.”
Despite the jump in oil prices, demand for energy continues to rise. “Total world energy consumption was up 2.4% in 2007, a slight slowdown from 2.7% in 2006 but still an above average increase,” he says.
Energy demand from non-Japan Asia is rising much faster than in developed countries. Although US oil use rose at a 1.8% annual rate from 2000 to 2005, Western Europe demand was up only 0.4%. In Asia-Pacific, the energy demand jumped 3%.
S&P expects this pattern of growth rates to continue over the next 25 years. “During the current decade, projections are for Chinese demand to rise 9.9%, nearly double the Asia-Pacific average. By 2030, we expect that Asia will use more energy than North America and Europe combined,” the report says.
Many Asian countries, notably China and India, subsidize energy consumption by controlling electricity and gasoline prices, S&P notes. Although this practice has shielded these economies from the most negative aspect of energy price increases, it leaves their trade positions exposed and certainly makes overall energy efficiency lower.
According to S&P, the future of oil prices remains uncertain though “it seems probable that oil prices will be significantly higher in 25 years than they are today.”
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First Published: Wed, Jul 02 2008. 11 46 PM IST