ADB Claim Low Oil Prices are Short Term

Asian Development Bank (ADB) has warned regional governments not to become complacent over the sudden fall in oil prices.

Despite oil prices have falling more than a third in value from their record levels of above $147 in July, ADB said in its update to its 2008 Asian Development Outlook that high oil prices were here to stay along with periods where the price would be volatile.

"While there will be short-term fluctuations, the unmistakable long-run trend is prolonged periods of high real oil prices and pronounced price volatility," the Manila based bank said.

"For too long, developing Asia and the rest of the world were in a state of collective denial about the sea change in the global oil landscape."

"The days of cheap oil are over," the bank said. "The long-running charade has to stop and it has to stop now”.

"The sooner the realization that high oil prices are here to stay, the sooner necessary adjustments will be made."

In New York Monday, the price of oil plummeted a hefty $5.47 to close at $95.71 a barrel while in London it tumbled $5.20 to settle at $92.38 a barrel.

Oil prices dropped more than $2.00 in early Asian trade on Tuesday.

The ADB cautioned that the new "oil price environment" would have a major impact on developing Asia.

"Perhaps the most immediate implication is that the governments, households, and companies of the region should finally wake up to the new realities."

It said high oil prices will have an adverse impact on developing Asia's growth, inflation and current account balance.

High oil prices will have the most impact on inflation since oil remains the dominant fuel for transportation "which is required for the production of virtually all goods and services."

ADV concluded, "The fundamental policy dilemma confronting Asian policy makers is between slower growth and higher inflation".



Author: Jo Amey