23 Jun 2008
Source: AsiaEcon.org
The price of crude oil hit a new high of almost $140 dollars a barrel on the New York mercantile this week. While Americans are affected by the daily damage of higher gas prices, industry around the world is feeling a significantly greater impact. In developing Asia, which consumes about 17 million barrels of oil a day (worth about US $2.38 billion at current market price), both businesses and workers are experiencing the strain of higher prices and loss of profits. In the smaller regions of Southern Asia, many have recently been driven to massive protest in order to protect their livelihoods.
“The market is extremely volatile at the moment,” says oil industry expert John Hall. “Any disruption to supply is immediately jumped on.” Much of the blame for the recent surge in oil prices falls on the weak US dollar (by which future markets trade oil). Other blame is placed on the sub-prime mortgage crisis, OPEC and terrorism in the Middle East. As fear and prices increase, a multiplier effect through several different markets occurs.
While making its way to industrial and consumer use, suppliers and governments must in turn pay for the inflated costs of fuel. In China, the country’s largest oil producer, Petro China Co., is facing heavy losses. “We predict the company’s net profit will drop 45 percent in the first half of the year,” said Liu Gu, an analyst with Guotai Jun’an Securities in Shenzhen, early in 2008. “If the year-long average crude oil price stands at $105 per barrel, we estimate PetroChina will pay over 120 billion yuan in windfall taxes.” With barrel prices now far beyond these predictions, major Chinese oil companies are facing unimaginable taxes.
Petro-China plans to create 60 billion yuan ($8.67 billion) in corporate bonds to reduce debt and finance better methods of natural gas and oil production. “The company needs large amounts of capital for project investments during the 11th Five-Year Plan (2006-10), as well as to cover rising windfall taxes caused by soaring crude prices and government caps on domestic refined oil product prices,” according to the statement.
Source: www.AsiaEcon.org
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