Milan (AsiaNews) Â– Asians are looking apprehensively at OPEC's plan to again reduce oil production because of the potential repercussions of the cut on their economies.
Back in October, the price of West Texas Intermediate (WTI) had rapidly dropped from its height of US$ 55 a barrel at the New York Mercantile Exchange when OPEC, led by Saudi Arabia, intervened to curb the upward trend. However, for the past six weeks the price of crude has been inching its way upward again. Currently, Brent is sold at US$ 45 a barrel whilst the WTI goes for US$ 48.
This trend does not bode well for Asia. All economies in the Far East are price sensitive. Asia alone consumes about 40 per cent of the 83 million barrels of oil produced every day in the world. But they are energy efficient is low. For example, although the US consumes 480 million tonnes of oil per year compared to China's 240, the US GNP is eight times that of China (US$ 8 trillion vs US$ 1).
This means that for every dollar added to its GDP, China ends up using four times more oil than the US. Similarly, for every cent added to the price of oil, China's production costs rise three times more than those of the US.
Recent media attention might have focused on the terrible consequences of the December 26 tsunami but Asians have not lost sight of oil prices which have an immediate impact on their ability to reduce with inflation, unemployment, underemployment and poverty.
Production problems in the North Sea, the Gulf of Mexico and Nigeria as well as IraqÂ—whose output is still at half pre-war levelsÂ—only add to the worries. For this reason, the expected decision by OPEC to cut production by a million barrels a day takes on an even greater significance.
Since the Persian Gulf is Asia's main supplier of oil, oil-producing and oil-consuming regions have become highly interdependent. A country like Saudi ArabiaÂ—that produces 9.5 million barrels a day and is the world's largest oil exporterÂ—ships 60 per cent of its exports to Asia which represent 20 per cent of Asia's total oil consumption.
With the world's largest known oil reserves and a spare capacity ranging from 1.5 to 2 million barrels a day, Saudi Arabia is in a position to set prices. It is in their vested interests to maintain the dependency of industrial economies on oil. High prices over a long period of time are not in its best interests since they might push industrial nations towards alternative energy sources.
By contrast, on the short term, Iran wants high prices. Their goal is to set the floor price of crude oil at around US$ 40 a barrel, up from the old one of US$ 25-28.
Last month OPEC cut production by a million barrels a day to stop rapidly declining prices. Oil markets had expected the move and oil prices remained relatively stable.
Currently rising prices are instead a response to expectations that OPEC members might agree to another production cut at their next meeting on January 30 in Vienna (Austria).
Acting Secretary General Dr. Adnan Shihab-Eldin said last Friday that oil supplies on world markets are adequate and his organisation "stands ready to take the necessary decisions to maintain market stability." For some, such words mean that OPEC is going to fulfill Iran's desire to see production cut.