2. Oil price in Q1/2010
- World crude oil price continued to escalate at a faster pace due to last year low base effect. In the first quarter, the average world crude oil price (Dubai, Brent, Oman, and WTI)stood at 76.9 US dollars per barrel, increased by 73.5 percent from the same period of last year. This was due to the low base effect resulting from world economic recession. Moreover, the upward trend was due to a faster-than-expected recovery of US economy and a strong recovery of Asian countries particularly China and India. In addition, the depreciation of US dollar also stimulated investors to overweight their speculation in commodity markets.
"...World crude oil price continued to escalate at a faster pace due to last year low base effect..."
Domestic retail price of all petroleum products increased from its 2009 level. Retail price of gasoline 95, gasoline 91, gasohol 95 (E10), gasohol 95 (E20), and gasohol 91 increased by 26.3, 44.6, 57.5, 57.9 and 58.0 percent respectively. Similarly, average price of high speed diesel and bio-diesel (B5 ) rose by 4 3 .5 and 5 1 .2 percent. The acceleration in domestic retail petrol price, was mainly due to a low base effect as a result of lower world oil price during last year, together with the impact of reducing excise tax under the “6 measures 6 months economic package” which was effective from the 25th July 2008 to 31st January 2 0 0 9 . Nevertheless, after the end of the “6 measures 6 months economic package”, there were an adjustment in excise tax structure in order to promote energy saving, including (i) the cabinet’s resolution in February 2009 to increase excise tax and (ii) an expansion of excise tax ceiling from 5 baht to 10 baht per litre in May 2009. Such measure on excise tax structure accompanied with an upward trend of world oil price has considerably pushed up domestic retail petrol price in the first quarter of 2010, compared to the same period of last year.
"...Domestic retail petrol price of all petroleum products heightened than those of last year..."
- Oil price trend in 2010
The average Dubai crude oil price in 2010 is expected to be in the range of 75-85 US dollars per barrel, higher than the average price of 61 .6 0 US dollars per barrel in 2009. In the first 4 months of 2010, the average Dubai crude oil price was 77.64 US dollars per barrel, and on the 13th May 2010 the Dubai crude oil price stood at 81.08 US dollars per barrel. However in the remaining of 2010, oil price is expected to escalate due to the global economic recovery, particularly Asia countries such as China and India, ASEAN countries, and other emerging countries. In addition, current level of production is expected to remain unchanged as OPEC will avoid putting more pressure onto the world crude oil price.
Oil price has a tendency to fluctuate due to the public debt crisis that has spread over the European countries leading to a depreciation of EURO against US dollar causing a pressure on the world crude oil price. Such pressure could be observed in the performance of WTI crude oil price during April through May. In details, WTI crude oil price has hit its peak at 86.64 US dollars per barrel on the 6th of April and remained in a range of 82-86 US dollars per barrel until the 4th of May. Furthermore, from 4th through 14th May WTI crude oil price rapidly plunged to 71.61 US dollars per barrel, while EURO has depreciated to its lowest level in 14 months. However, in the long term, the average crude oil price in 2 0 1 0 is likely to be higher than that of last year. The Energy Information Administration (EIA) forecasted that the average crude oil price in 2010 will be 82.2 US dollars per barrel and most analysts estimated crude oil price in the range of 75-95 US dollars per barrel. Similarly, NESDB expected that the average crude oil price of WTI will be in a range of 75-85 US dollars per barrel, higher than the average price of 61.82 US dollars per barrel in 2009. Key supporting factors for higher oil price are as followed:
"...The average Dubai crude oil in 2010 is expected to be in the range of 75-85 US dollars per barrel higher than an average of 61.60 US dollars per barrel in 2009..."
- The increase in oil demand in tandem with global economic recovery, especially in Asian countries: According to EIA’s report on oil market situation in May 2010, the oil demand in 2 0 1 0 was adjusted upward following an increase in the global economic expansion. Thus, the EIA forecasted that the amount of global oil demand will rise by 1.57 and 1.6 million barrels per day in 2010 and 2011 respectively. The increase in global oil demand will be mainly from the ASIA-Pacific and Middle East countries. However, the oil demand in OECD countries during 2010 will slightly drop as a result of slow down in demand by European countries and Japan.
- The US dollar likely to depreciate in 2 0 1 0 due to a concern over US economic recovery in relative to other trading partners. Thus, this tends to encourage investors to shift their investment portfolios from equity market to commodity market, particularly oil market which is an alternative investment as well as a hedging product against currency depreciation and inflation. Nevertheless, the US dollar is expected to stabilize during the second half of the year.
3. World Economic Performance in Q1/2010 and Outlook in 2010
In the first quarter, the world economy has recovered continuously especially the US, China and Asia whose domestic demand had improved continually. The consumption in the US showed a clear sign of continuous improvement. The consumption in Japan also had a positive trend but will remain at a low level due to prolonged deflation. In the Eurozone, private consumption and domestic demand still at the low level and fragile because of high unemployment and sovereign risk. Inflation pressure in the US, Japan and EU remains low, whereas inflation pressure in Asia starts to rise.
- US economy expanded by 2.5 percent accelerated from 0.1 percent in the fourth quarter of 2009. The seasonally adjusted data shows that the US economy expanded at a slower pace of 0.8 percent, compare to that of 1.4 percent in the previous quarter. This was a result of a slowdown in inventory accumulation, exports, home sales and the investment in equipments and software. The expansion in the first quarter was supported by an increase in consumption of durable goods and services. The prices of goods and services (except food and energy) grew at a slower pace, of 1 .7 percent, compared to the 2 .0 percent increase in the previous quarter. PMI in the first quarter was 58.2 and picked up to 60.4 in April, the highest level in the past 4 years. This reflects the improvement in manufacturing production as a result of economic stimulus measures.
Despite the clear sign of recovery, the US economy remains fragile due to unstable employment. In the first quarter, number of unemployment were 15.0 million people. The unemployment rate was at 9 .7 percent ,decreased from 1 0 .0 percent in the previous quarter. The rate soared to 9.9 percent in April, accounted for 15.3 million people. However, the employment in non-agricultural sector started to recover. Trade deficit tended to move upward from the increased imports value. Due to the rise in crude oil and non-energy goods price. In the first quarter of 2010, the level of trade deficit reached 116,802 million US dollars (seasonally adjusted), compared to 92,221 million US dollars in the first quarter of 2009.
"...The world economy continued to expand especially those in Asia, China, and US. Whereas there is a high chance of fiscal uncertainty in PIIGS...."
- Eurozone Economy grew by 0.5 percent, the first positive growth in six quarters, increased from a contraction of 2 .2 percent in the last quarter of 2 0 0 9 . Seasonally adjusted data shows that the economy expanded by 0 .2 percent, up from 0.0 percent in the previous quarter. This is a result of economic recovery in the major market, Germany and France. Inflation rate continued to rise to 1.4 and 1.5 percent in March and April respectively. In May 2010 Euro depreciated significantly by 5.2 percent (%MoM) against US dollar (the lowest level in 14 months) and also depreciated by 2 .7 percent against the pound sterling (the lowest level in 9 months). Unemployment rates remained high at 1.0 percent. In March, unemployment rate in Latvia and Spain reached 22.3 and 19.1 percent respectively.
The PIIGS economies faced with a monetary and fiscal instability, especially Italy and Greece that have the highest public debt of 115.8 and 115.1 percent of GDP, respectively, while average public debt per GDP of Euro zone was 78.7 percent of GDP. The European commission forecasted that public debt in Euro zone at the end of 2010 will accelerate to 84.7 percent of GDP.
- Japanese Economy expanded by 4.6 percent, compared to the contraction of 1.1 percent in the previous quarter. After seasonal adjustment, the economy grew by 1 .2 percent, slightly increased from 1.0 percent in the previous quarter. Unemployment rate in January stood below 5 percent for the first time in the past ten months with a decline from 5 .2 percent in December to 4 .9 percent. Manufacturing PMI decreased slightly from 52.5 in January and February to 52.4 in March. Manufacturing output rose by 2.5 percent, an 11th consecutive expansion due to more exports and the effects of the stimulus measures to manufacturing sector. Fixed asset investment continued to be moderate as Japanese companies still operate with excess capacity while domestic demand remain subdued.
- Chinese Economy expanded by 11.9 percent, increased from 10.7 percent in the previous quarter. The V-shaped recovery path in 2009 was a result of expansionary monetary and fiscal policy that continues to be implemented in 2010. Consumer price inflation modestly grew by 2.2 percent, whereas producer price index rose by 5.2 percent. Trade balance in the first quarter registered a surplus of 617.9 billion US dollars, an increase of 44.1 percent compared to the same period of last year. In addition, export values expanded by 2 8 .7 percent while import values surged by 6 4 .6 percent, indicated a faster-than-expected recovery. Investment in fixed assets increased by 2 5 .6 percent, declined from the expansion of 30.1 percent in the previous quarter.
"...The Chinese economy expanded 11.9 percent in the first quarter which had a V-shape growth due to the current expansion monetary policy..."
- New Industrial Economies (NIEs) and India generally had a positive growth. In the first quarter, Singapore experienced the highest growth of 15.5 percent, higher than 4.0 percent in the last quarter of 2009. South Korea grew by 7.8 percent, compared to a 6.0 percent growth in the last quarter of 2009. Hong Kong expanded by 8.2 percent, compared to 2.6 percent growth in the fourth quarter of last year. Taiwan expanded by 1 3 .3 percent, a slower pace of growth compared to an expansion of 9 .2 percent in previous quarter. Manufacturing sector continued to expand in every NIEs economies. South Korea’s manufacturing sector increased by 1 9 .1 and 2 2 .1 percent in February and March respectively. The expansion in manufacturing sector was a result of the recovery of electrical appliances and electronic industries. Inflationary pressure in NIEs countries remained high. In the first quarter of 2010, South Korea’s inflation rate was 2.7 percent, higher than 2.4 percent in the previous quarter. Bank of Korea announced its inflation targetfor 2010 to 2012 to lie between 2.0-4.0 percent and will keep the interest rates at 2 percent until the US and other major economies start to withdraw their stimulus plan. Taiwan’s inflation rate was 0.9 percent. India’s inflation has escalated due to the drought, low harvest and the rise in price of crude oil. Bank of India has adjusted the interest rate twice this year, and the current interest rate is now at 5.25 percent.
- ASEAN Economies showed a high expansion in the first quarter of 2 0 1 0 . Malaysia expanded by 1 0 .1 percent, increased from 4 .5 percent in the fourth quarter of 2 0 0 9 . Indonesia grew by 5.7 percent, compared to 5.4 percent in the last quarter of 2009. Vietnam expanded by 5.8 percent, a slight increased from 5.1 percent in the fourth quarter of 2009. Inflationary pressure among ASEAN economies in February remained high, especially the Philippines and Thailand whose inflation rate was 4.2. Malaysia’s inflation was 1.3 percent, whereas Indonesia’s inflation was 0.3 percent. Vietnam’s inflation for 2010 is forecasted to be 9.0 percent, higher than last year of 6.5 percent.
- Global Economic Outlook in 2010
The global economy is forecasted to grow by 3.9 — 4.3 percent, better than the previous expectation in early 2010. This upward trend is fueled by several factors: (i) the higher-than-expected growth of the Asian economy in the first quarter, (ii) the growing of the domestic private demand in major industrialized countries especially in US and Japan, and (iii) the change in the inventory stock cycle in the major industrialized countries, NIEs and the developing countries in Asia especially the world production and import based countries. It is expected that US, Japan, China and India economies would expand by 3.0, 1.5, 10.0 and 8.0 percent respectively, more than the previous forecast of 2.7, 1.2, 9.7, and 7.8 percent respectively. However, the debt crisis in Europe would slowdown the recovery pace for the region which is likely to grow at 0.9 percent, compared to the previous forecast of 1.6 percent.
"...The projection of the world economic expansion in 2010 would be more than previously projected at the beginning of this year, while there is a high possibility of uncertainty..."
Nonetheless, the world growth expansion for the rest of this year still faces the risk of debt crisis in Europe along with the limited credit approval measure in China that needs to be closely monitored. Although the assistance from ECB and IMF for Greece with the total amount of 14.6 billion US dollars and the establishment of European crisis fund of 1 trillion dollars to assist member countries with credit default problem could reduce the chance that the debt crisis will develop to global financial crisis, however, the effect of Volcano eruption in Iceland and the measure to decrease the fiscal deficit could slowdown the European economy. Then the wariness among investors and the tendency that the Euro would depreciate against US dollars could have a negative impact on the US and Japan economic recoveries. At the same time, the Chinese economy in the second half of 2010 could also be slowdown by (i) the implication of a limited credit approval policy of 7.5 trillion Yuan for the whole year, and (ii) a deceleration in European economies.
Interest rate in the world market is on the upward side. The US dollar tends to appreciate against the other major currencies, but depreciate against Asian currencies. The high growth in the last quarter of 2009 and the first quarter of 2010 puts a pressure on inflation rate to go up. This tends to force Asian countries to raise their interest rate particularly China which is under a great pressure to increase the interest rate and the currency value. Meanwhile, the US inflation rate is historically low. Therefore, the adjustment in US monetary policy to reduce liquidity excess is very likely at this stage, and it is possible that FED will slowly increase its interest rate in the late third quarter or in the fourth quarter. The limitation in managing the fiscal policy of Japan and its high debt level can be expected that Japan will remain its current interest policy throughout year 2010 and 2011, and will increase its money supply to reduce the pressure on the ongoing deflation, similarly to the ECB policy to remain its interest rate for the year 2010.
The time difference in changing the monetary policy direction, together with the difference in the length of economic recovery cycle, plus the concern on debt crisis in Europe will cause the US dollar to continually appreciate against Yen and Euro, thereby tends to depreciate against Asian currencies. These conditions will be the supporting factor to the mobility of fund into the developing and emerging countries in Asia. It is also likely to be fluctuated according to the fear on debt payment and the situation in European economy.