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Asian Oil Consumers Welcome Cheaper Oil

India and Japan say cheaper crude is preferable during the worst economic crisis in generations

Asian Oil Consumers Welcome Cheaper Oil

Big Asian oil consumers gave a cool response on Tuesday to Saudi Arabia's suggestion that $75 a barrel was a "fair" price for oil.

While that is half the $147 a barrel record high hit in July, few in Asia were ready to embrace a higher medium-term equilibrium as they enjoyed $50 oil for the first time in over three years.

"There are frequent comments by oil producers about $60-$75 per barrel," Toshihiro Nikai, Japan's minister of economy, trade and industry, told reporters in Tokyo. "But for us, the cheaper the oil price, the better."

R.S. Pandey, India's oil secretary, also cited volatility as the greater concern.

"As a major consuming nation we would like prices to remain stable and around this level," he said, declining any direct comment on his view of $75. "What is more important is there has to be stability in prices. Volatility of the kind witnessed this year has been very bad."

Instead, most producers have emphasised the need to balance supply with demand, saying that prices - fuelled by speculation, a shortage of refining capacity or the direction of the dollar - had surged beyond fundamentals - and beyond their control.

With investors worldwide spooked by the prospect of recession and Japan seemingly on course for its longest-ever economic contraction, a higher oil price would make things even tougher.

"Against this background, I think a rebound in crude prices again would be unbearable," said Shigeru Suehiro, a senior economist at Japan's Institute of Energy Economics.

The comments from Saudi Arabia's King Abdullah and oil minister Ali al-Naimi were a surprise to many analysts as the the world's biggest oil exporter has for years studiously avoided giving any signals on what it believes might be a sustainable long-term oil price even since crude broke OPEC's $22-$28 band.

Reuters' analytics believe that the danger in that attitude is that oil markets could face a repeat of the price spike that began six years ago, when demand from emerging economies surged faster than anaemic growth in crude output after years of middling investment.

Author: Ksenia Kochneva


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