In just over seven months, the world went from fearing the devastating prospects of crude oil at US$200/bbl to experiencing the equally devastating reality of the commodity’s collapse to minus US$40.
The world economy was to have gone up in flames last September when drones blew up giant oil facilities in Saudi Arabia, and again in January when the assassination of Iran’s most powerful general ignited talks of a third world war.
That did not materialise – for now at least – and the fickle oil markets quickly sold off.
But just as the world thought it had escaped catastrophe, a new disease broke out in China. By the first quarter, the COVID-19 pandemic had shut down a large part of global trade and the economies of most countries.
The world economy will shrink by 3% this year and lose up to US$9 trillion for its worst meltdown since the Great Depression of 1929, said the International Monetary Fund (IMF).
ADB vs the IMF
Remarkably, the Asian Development Bank (ADB) expects Southeast Asia’s mix of energy-surplus and energy-deficient economies to continue to grow over the next two years. Its relatively upbeat forecast, published in early April at the same time as the IMF’s report, largely assumes COVID-19’s impact will peak in the second quarter, with a gradual return to normality in the second half of 2020.
In stark contrast to the ADB, the IMF along with many private economists are nervously referencing the Great Depression in their analyses.
As most of developing Asia has yet to see a peak in COVID-19’s spread, it is the ADB that may have to soon downgrade its forecast for Southeast Asia’s economies.
With the Brent crude price plunging from an average US$66/bbl in 2019 to under US$20/bbl in late April, the region’s energy producers Brunei, Indonesia, Malaysia and Vietnam could have their oil and gas export earnings slashed by as much as 70% this year. The US benchmark crude, West Texas Intermediate (WTI), fell to a new record low of minus US$40/bbl on 20 April.
For net energy importers Cambodia, Laos, Myanmar, Singapore, Philippines and Thailand, the benefit of cheaper oil and gas will be offset by the shock of sharply weaker exports and lower economic growth.
Written by Ng Weng Hoong, Contributing Editor.
This article was originally published in the July 2020 issue of Hydrocarbon Engineering. To read the full article, and other great technical articles in this issue, view the full issue here. You can also register to receive a free regular copy of the magazine here.
Read the article online at: https://www.hydrocarbonengineering.com/special-reports/07072020/southeast-asia-riding-the-oil-price-storm/