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As Brent climbs closer to US$80, Asia’s oil expenses could reach US$1 trillion, Reuters reports, citing robust demand and a stronger greenback. This would likely have a marked negative effect on some Asian economies, with RBC Capital Markets analysts noting that Asian oil consumers are most vulnerable to oil price jumps.
The Asia Pacific accounts for more than a third of global oil consumption, which currently stands at around 100 million barrels daily. At the same time, it produces less than a tenth of global oil, which is the reason for its heightened vulnerability to oil price moves.
China and India in particular, are both the drivers of the regional demand growth and stand to lose the most if prices get to be too high. China last month imported an average of 9.6 million barrels daily, which at current prices cost US$768 million a day. This translates into US$280 billion for the full year, at current prices.
Yet China is a relatively rich country, equipped to withstand a price shock. Also, China has been filling its petroleum reserves while prices were low, so it likely has a substantial cushion against such a shock.
India, on the other hand, is poorer than China and it imports even more oil than its neighbor. Last month, India reported its trade deficit had reached the highest in three months because of higher oil prices. At US$13.7 billion, the deficit was lower than the estimate of several analysts polled by Bloomberg, but it was still the highest since the end of 2017 given that growth in non-oil imports slowed to a 16-month low.
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Asia’s new powerhouse imports 80 percent of the crude oil it needs to fuel its growing economy. This year, the country’s oil ministry has calculated it would need to import 1.61 billion barrels (219.15 million tons) of crude, which at current Brent prices would mean a bill of US$127.19 billion.
That’s a hefty bill, although much smaller than China’s. A lot of analysts leaning towards the bullish side argue that oil needs to breach US$100 a barrel to start denting demand. Both India and China have ambitious infrastructure projects that require fuel, and China is making good money from oil product exports, which have been a major driver of higher imports.
Whether or not these analysts are right will likely become evident soon enough. Let’s just recall that China’s Sinopec cut its orders from Saudi Arabia by 40 percent last month after the Kingdom announced a surprising increase in prices for Asian clients.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.