Low oil prices props up airline profits

SINGAPORE  The plunge in crude prices will give a much-needed boost to Asia’s oil-guzzling economies.
Among the top winners is the airline sector, while shipping and energy-intensive heavy manufacturing industries such as steel will benefit across the region.
Shukor Yusof, founder of Malaysia-based aviation research firm Endau Analytics, said jet fuel accounts for about a third of airline operating costs in Asia.
“You’re likely to see airlines posting profits for the fourth quarter of 2014 and for this coming quarter,” he told AFP.
inside no 10“Given the trend in falling oil prices, we should see a corresponding correction in air fares as well.
Experts say lower oil prices would ease inflationary pressures throughout much of Asia, allowing many central banks to either keep monetary policy on hold or reduce interest rates.
And the Asian Development Bank last month said developing countries could see an additional 0.5 percentage point of growth on average this year if oil prices remain low.
However reforms are needed, analysts say, and among the most crucial and controversial is the removal of fuel subsidies, which in the past been the catalysts for sometimes violent protests across the spectrum, from the impoverished to the region’s growing middle class.
While global equity markets are being strafed by a continuing slump in the prices of black gold — they have fallen more than 50% since June to five-and-a-half-year lows — analysts said countries should grab the opportunity and move now.
Malaysia, Indonesia and India have already made cut to the populist, but economically disastrous subsidies, which have contributed to government fiscal deficits.
Shang-Jin Wei, chief economist at the Manila-based ADB, said in a statement that easing oil prices “present a golden opportunity” for oil-importing countries to introduce the reforms.
And Rajiv Biswas, Asia Pacific chief economist at global consultancy IHS, warned if they fail to move, leaders “will miss the window of opportunity and face public resistance to removal of fuel subsidies if oil prices strengthen significantly in future years”.
Biswas said “most of the Asian economies are large net importers of oil and gas, and will benefit from lower oil import costs and significantly reduced fuel costs for consumers”.
“This positive boost helps to mitigate the negative effects of China’s moderating growth rate and Japan’s slump back into recession in late 2014,” he said.
Analysts expect India, Asia’s third largest economy, to be a major beneficiary as it imports nearly 80% of its oil needs.
INDONESIA-ENERGY-PETROL-POLITICSLike China and South Korea, the lower prices should keep inflation in check and allow the central bank to implement much-needed interest rate cuts with less fear of stoking inflation.
However, oil and gas exporters including Malaysia and Brunei stand to take a hit.
With petroleum-related earnings accounting for 30% to 40% of Malaysian government revenues annually, the ringgit currency has fallen almost 11% against the US dollar over the past six months as oil prices sank.
Malaysia in October forecast economic growth of 5% to 6% for 2015, but the World Bank projects the expansion at 4.7% due in part to lower oil prices.
And there could be further falls in the oil price from the present levels of USD47.90 for West Texas Intermediate and USD50.82 for Brent.
Daniel Ang, an investment analyst with Phillip Futures in Singapore, told AFP he expects WTI to hit bottom at USD46 and Brent to hover at USD50 to USD53 in the second quarter of this year.
He forecasts WTI to average USD58 to USD63 a barrel this year, against the average USD92.60 in 2014 and USD98.05 in 2013. Brent is projected to average USD60 to USD65 this year, compared with USD99.29 last year and USD108.70 in 2013.
But Ang and other oil market watchers say further price falls to below USD40 would not surprise them.

sourced:ttrweekly.com