The significant escalation in geopolitical tensions in the Middle East has already pushed up world crude oil prices sharply in the first few days of 2020 - Photo: Privacy.

JAKARTA (TheInsiderStories) – The significant escalation in geopolitical tensions in the Middle East has already pushed up world crude oil prices sharply in the first few days of 2020, with Brent crude breaking through briefly above US$70 several times in recent days, from recent lows of $59 in mid-October 2019.

Rajiv Biswas, Asia Pacific Chief Economist at IHS Markit, said as many Asia-Pacific (APAC) economies are highly dependent on imported crude oil supplies, a large number of APAC nations are vulnerable both to large increases in the world price of oil as well as to potential disruptions of oil supply through the Strait of Hormuz, through which 21 percent of total world petroleum liquids consumption is shipped.

“Many Asian industrial nations, including China, Japan, South Korea, India, Thailand, and Singapore, are heavily reliant on imported crude oil supplies, with a high level of sourcing from the Middle East oil-exporting nations, such as Saudi Arabia and UAE,” Biswas said in a statement on Wednesday (01/08).

India is amongst the most vulnerable Asian industrial economies to rising world oil prices, with oil import dependence reached 84 percent in the 2018-19 financial year, with total oil imports costing $112 billion, or around 22 percent of total merchandise imports.

China is also heavily reliant on imported oil, which accounted for around 70 percent of total oil consumption in China in 2018. For the first 11 months of 2019, China’s oil imports averaged 10 million barrels per day.

Escalating geopolitical tensions in the Middle East are likely to continue to drive efforts by Asian countries to improve energy security by diversifying oil and gas supply sourcing towards other major suppliers, notably the US, according to Biswas.

If world oil prices rise sharply due to further escalation in the Middle East crisis, many Asian nations are also vulnerable to the impact of higher oil import prices on retail inflation. During 2019, many APAC nations had been easing monetary policy due to lower inflationary pressures, assisted by declining world oil prices.

Overall, many economies in the APAC region remain vulnerable to an oil price shock from a large and rapid rise in world oil prices, as well as any disruption in oil and LNG shipments from Middle East markets.

EIA: US Oil Boom Suppressed Oil Prices in 2019

The US Energy Information Administration (EIA) said on Tuesday that the rising US crude oil production weighed on oil prices throughout 2019, and combined with the weak demand growth last year, booming American oil output resulted in lower average oil prices in 2019 compared to 2018.

Brent Crude prices averaged $64 a barrel last year, which was $7 per barrel lower than the international benchmark’s 2018 average price. The price of WTI Crude averaged $57 per barrel in 2019, also $7 a barrel lower than in 2018, EIA’s data showed.

The Brent price range last year was just $20 a barrel—the narrowest range in which the benchmark has traded since 2003, according to the EIA. WTI Crude prices ranged between $47 and $66 per barrel.

The price hike was short-lived amid assurances from the Saudis that they would quickly restore supply and amid the prospects of very weak demand growth as the US-China trade war raging.

Booming US production also likely limited the impact of the attacks on oil prices, the EIA said. America’s crude oil production also likely offset the efforts of OPEC and its Russia-led allies to curtail supply to support prices, as well as the US sanctions on Iran and Venezuela’s crude oil exports.

The EIA expects US crude oil production to have averaged 12.3 million bpd in 2019, easily making the US the world’s top crude oil producer.

Meanwhile, the American Petroleum Institute (API) reported Tuesday a decrease of 5.945 million barrels of crude oil in the US crude oil inventories for the week ending Jan. 3.

The API reported a drop of 7.8 million barrels of crude oil inventories for the previous week ending Dec. 27, and the EIA reported a loss of 11.5 million barrels. Oil prices declined on Tuesday as investors’ concerns over geopolitical tensions in the Middle East eased.

The West Texas Intermediate for February delivery declined $0.57 to settle at $62.70 a barrel on the New York Mercantile Exchange. Brent crude for March delivery decreased $0.64 to close at $68.27 a barrel on the London ICE Futures Exchange.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com