Asia now price setter for oil: experts

Asia now price setter for oil: experts
By Rachel Kelly

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SINGAPORE : Asia has become the price setter for oil, on the back of increased demand from China.

Experts said this is changing the way players in the region handle the trading of oil. However, they noted that it will take some time for Asia to establish a strong pricing market.

Oil prices may have settled around the US$70 to US$80 a barrel mark, but they have been on a roller-coaster ride - up sharply in 2008 before going on a downward spiral and then picking up again.

According to some experts, demand from Asia, especially China, has been driving oil prices to where they are now.

Last year, China surpassed Japan as the world's second largest oil consumer, and industry watchers said it wants a say in pricing.

Jason Feer, senior vice president & general manager, Asia Pacific, Argus Media, said: "Traditionally in Asia, the major importing countries for energy commodities and other commodities have been price takers so the price that Asian importers are paying for oil is typically set by other people, traders, or perhaps, futures exchanges in other regions.

"The Chinese are no longer content to be passive price takers and so they are much more active in the commodities markets and the spot markets than the traditional economic powers in the region - like the Japanese, Koreans, the Indians.

"(They) have also become more assertive about participating in markets, about having an influence on what the price is, and that's a real shift."

But while some said Asia is a determining factor in the increase in oil prices, they added that it remains underdeveloped when it comes to pricing markets, in comparison to those in the West such as NYMEX. They said that is because Asian buyers traditionally have not hedged their price risks.

And in some cases, pricing environments are dominated by price controls or subsidies.

But on the other hand, others argued that speculation, rather than demand, has been driving prices.

Valery Golovushkin, president & CEO, Socar Trading, said: "I don't think there is any connection in the rising oil prices and Chinese demand. I don't think there is any connection to the fundamentals, to the supply and demand. Oil prices in the last couple of years are driven by speculation."

Demand for oil in China has grown by about 8 to 10 per cent annually, compared with the global increase of around 1.5 per cent.

- CNA/al

- wong chee tat :)