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Rising oil prices: 4 areas that may impact Singaporeans
Oil prices are on the rise as fears mount over a possible invasion of Ukraine by top oil producer Russia, with Brent crude oil surging past US$90 a barrel yesterday.
A Ukraine invasion could trigger United States and European sanctions, which would disrupt oil exports from Russia and put pressure on prices at a time when the Organisation of the Petroleum Exporting Countries and its allies are struggling to meet their output targets.
More price volatility is expected as the situation in Ukraine unfolds.
“If… troop movement happens, Brent crude won’t have any trouble rallying above the US$100 level,” said Oanda analyst Edward Moya in a note.
The higher oil prices come at a time of rising inflation and could have a further impact in these four areas:
1. Shipping and logistics costs
Higher oil prices will drive up bunker surcharges, which form a major component of total shipping costs. This will inflate the cost of shipping everything, from electronic components to building materials, into Singapore, said Mr Divay Goel, chief investment officer of Prudent Shipping Investments, a shipping and ports advisory.
“Depending on demand and supply for the goods or commodities shipped, and how negotiations between suppliers and shipping lines pan out, a portion of the higher shipping costs will likely be passed on to you and me,” he said.
2. Electricity prices
Electricity prices will rise further as power companies are expected to continue passing on the costs of rising fuel prices to their customers. About 95 per cent of Singapore’s electricity is generated from imported natural gas, which is indexed to the price of oil.
Prices have already been on the boil due to increased gas demand globally. According to SP Group, the household electricity tariff for the Jan 1 to March 31 period will be 25.44 cents per kilowatt hour (kWh), excluding goods and services tax. This is up 5.6 per cent from 24.11 cents per kWh before.
Yesterday, The Straits Times reported that of the 10 small and medium-sized enterprises that consult the Singapore Productivity Centre each week, at least half plan to eventually pass on higher electricity prices to consumers.
3. Travelling overseas
Some airlines could pass on rising fuel costs to passengers by raising ticket prices, either via an outright fare hike or by adding a fuel surcharge component to the ticket.
To make the situation worse, many airlines may have deprioritised hedging their fuel requirements to save costs when international travel ground to a near-halt in 2020 due to the pandemic.
While some carriers may delay passing on any additional costs, flying will “quickly become more expensive” as demand returns and restrictions are lifted, said Mr Christof Ruhl, a senior research scholar at Columbia University’s Centre on Global Energy Policy.
4. Economic recovery
Should rising oil prices and inflation expectations start feeding into the consumer price index and producer price index, it could prompt the Monetary Authority of Singapore (MAS) to tighten monetary policy further to manage those expectations, said CIMB Private Banking economist Song Seng Wun.
As MAS moves to contain price pressures, it must also ensure it does not derail any recovery as the economy emerges from the pandemic, Mr Song said.
Source: https://www.straitstimes.com/business/economy/rising-oil-prices-4-areas-that-may-impact-sporeans