Sustained high oil prices increases food & other commodity prices thus surge in inflation, especially problematic for low income per capita countries, relatively, because the food items weights are greater In overall CPI basket.
Net oil importing countries will face the music , at high volume, because of pressure on external account & fiscal deficit would be tough to manage.
The biggest fear is high oil price impact on business cycle, would global economy still grow at the pace which is expected (4.6% in 2011)? Or will it slowdown (below 3%) ? Or 2nd dip (like 2009’s -0.6%)?
Who drives the global growth?
In 2010, World's top 15 net oil importing countries GDP contribution to World's GDP is 68% while World's top 15 net exporting countries GDP contribution to World's GDP merely stands at 9%.
More interestingly, World’s top 15 net oil exporting countries contribution to world GDP growth in 2010 & 2011F-2015F is even lower, 6.2% & 7.6% respectively While World’s top 15 net oil importing countries contribution to world GDP growth in 2010 & 2011F-2015F also decreased to 56.9% & 52.7% respectively.
| Net Imports* ('000 bpd) | Contribution to World GDP in 2010 | Contribution to World GDP Growth in 2010 | Avg. Contribution to World GDP Growth in 2011F-2015F |
World's Top 15 Net Oil Importing Countries | 35,324 | 67.6% | 56.9% | 52.7% |
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| Net Exports* ('000 bpd) | Contribution to World GDP in 2010 | Contribution to World GDP Growth in 2010 | Avg. Contribution to World GDP Growth in 2011F-2015F |
World's Top 15 Net Oil Exporting Countries | 37,731 | 9.2% | 6.2% | 7.6% |
*2009 statistics
Source: EIA, IMF & AGIM Research
It makes me to believe that sustained high oil prices is clearly negative for World's GDP growth by high margin.
World's Top 15 Net Oil Importers,2009 |
Rank | Country | Net Imports ('000 bpd) | Contribution to World GDP in 2010 | Contribution to World GDP Growth in 2010 | Avg. Contribution to World GDP Growth in 2011F-2015F |
1 | US | 9,669 | 23.6% | 13.2% | 14.5% |
2 | China | 4,328 | 9.3% | 19.1% | 19.4% |
3 | Japan | 4,311 | 8.7% | 7.5% | 3.3% |
4 | Germany | 2,307 | 5.3% | 3.8% | 2.1% |
5 | India | 2,233 | 2.3% | 4.5% | 4.1% |
6 | South Korea | 2,139 | 1.6% | 1.9% | 1.5% |
7 | France | 1,749 | 4.1% | 1.3% | 1.7% |
8 | UK | 1,588 | 3.6% | 1.2% | 1.9% |
9 | Spain | 1,439 | 2.2% | -0.2% | 0.9% |
10 | Italy | 1,381 | 3.3% | 0.7% | 0.9% |
11 | Netherland | 1,122 | 1.2% | 0.5% | 0.5% |
12 | Taiwan | 944 | 0.7% | 1.3% | 0.7% |
13 | Singapore | 916 | 0.4% | 1.1% | 0.3% |
14 | Thailand | 601 | 0.5% | 0.8% | 0.5% |
15 | Belgium | 597 | 0.7% | 0.2% | 0.3% |
| Total | 35,324 | 67.6% | 56.9% | 52.7% |
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| Source: EIA, IMF & AGIM Research | | | |
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World's Top 15 Net Oil Exporters, 2009 |
Rank | Country | Net Exports ('000 bpd) | Contribution to World GDP in 2010 | Contribution to World GDP Growth in 2010 | Avg. Contribution to World GDP Growth in 2011F-2015F |
1 | Saudi Arabia | 7,322 | 0.7% | 0.5% | 0.7% |
2 | Russia | 7,194 | 2.4% | 1.8% | 2.2% |
3 | Iran | 2,486 | 0.5% | 0.2% | 0.4% |
4 | UAE | 2,303 | 0.4% | 0.2% | 0.3% |
5 | Norway | 2,132 | 0.7% | 0.1% | 0.3% |
6 | Kuwait | 2,124 | 0.2% | 0.1% | 0.2% |
7 | Nigeria | 1,939 | 0.3% | 0.5% | 0.5% |
8 | Angola | 1,878 | 0.1% | 0.2% | 0.2% |
9 | Algeria | 1,807 | 0.3% | 0.2% | 0.2% |
10 | Iraq | 1,764 | 0.1% | 0.1% | 0.3% |
11 | Venezuela | 1,748 | 0.5% | -0.1% | 0.1% |
12 | Libya | 1,525 | 0.1% | 0.3% | 0.2% |
13 | Kazakhstan | 1,299 | 0.2% | 0.2% | 0.3% |
14 | Canada | 1,144 | 2.5% | 1.5% | 1.3% |
15 | Qatar | 1,066 | 0.2% | 0.6% | 0.4% |
| Total | 37,731 | 9.2% | 6.2% | 7.6% |
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| Source: EIA, IMF & AGIM Research | | | |
Regionally Asia, developed Europe & developed North American growth would hurt the most because of same reason, largest net oil importers.
Region wise Trade balance of Oil & Petroleum Products
Source: UN Comtrade, 2009
In case, global economy slow down then EM economies will hurt the most because they are leveraging on global growth rather domestic consumption. All depends on at what level Oil price would sustain.
Sustained high Oil prices impact on regional countries?
Only Malaysia & Vietnam would benefit from high oil prices, rest’s economy have to take the pain.
Taiwan, south Korea, & Pakistan would be the most vulnerable regional economies if oil prices sustained at high level.
Regional Countries: Oil Play |
Thousands bpd | Supply | Consumption | Net Exports / (Imports) | Oil import bill (at USD 100/bbl) as % of GDP |
Malaysia | 693 | 554 | 139 | 2.3% |
Vietnam | 346 | 293 | 53 | 1.9% |
Srilanka | -1 | 85 | (86) | -6.4% |
Bangladesh | 6 | 96 | (90) | -3.1% |
Indonesia | 1,023 | 1,268 | (245) | -1.3% |
Philippine | 25 | 313 | (288) | -5.5% |
Pakistan | 58 | 397 | (339) | -7.0% |
Thailand | 339 | 940 | (601) | -6.9% |
Taiwan | 27 | 971 | (944) | -8.0% |
South Korea | 46 | 2,185 | (2139) | -7.8% |
India | 877 | 3,110 | (2233) | -5.6% |
China | 3,996 | 8,324 | (4328) | -2.7% |
Source: EIA, 2009 & AGIM Research
Does Developing Asian economies play role in World growth?
Developing Asian economies have just 15% contribution to World GDP in 2010 but their role in 2010’s World GDP growth is double than their size.
Therefore, if developing Asian economies slow down then it would have serious impact on World GDP growth.
| Contribution to World GDP in 2010 | Contribution to World GDP Growth in 2010 | Contribution to World GDP Growth in 2011F-2015F |
Developing Asia | 15% | 29% | 28% |
Source: IMF & AGIM Research
Generally, high oil prices fuel food prices & energy prices (for net importers) in this case developing Asia has to bear the pain (though few govt. subsidize but in that case fiscal deficit would widen)
In developing Asia, average food & fuel weights is 46% in overall CPI basket which is quite high in comparison to high income per capita economies (e.g. US, UK, Germany, Saudi Arabia, UAE)
Food & Energy Weight in CPI basket |
Bangladesh | 65%* |
Philippine | 54% |
Indonesia | 51% |
Pakistan | 48% |
India | 47% |
Malaysia | 47% |
Vietnam | 46% |
Srilanka | 46%** |
Thailand | 39% |
Taiwan | 38% |
South Korea | 37% |
China | 31% |
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Source: CEIC, AGIM Research |
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*includes tobacco & beverage |
** only food | |
Would oil prices sustain at high level (above USD 105)?
Fundamentally, currently there is no big crisis in major oil producing countries in MENA region & no such demand overrun.
But one highly noticeable thing is at this point in time OPEC may help European refineries (Libya’s ~85% oil export to Europe, Link) to diffuse the current crisis but if crisis spread from Libya or even Algeria to other oil producing country then OPEC would have very low ready spare capacity (~2 mn bpd) to rescue then Oil price can sharply increases because IEA member’s spare capacity mainly contains strategic reserves (huge quantity 1.6 bn barrel of stocks as of 24 Feb 2011, Link)
Regards,
Irfan
