Last week, crude briefly broke through US$100 a barrel as the revolution in Libya and unrest in other oil producing nations inflamed fears about supply shortages. The North African country is the ninth largest oil producer in the 12-member Organisation of Petroleum Exporting Countries (OPEC), accounting for 5.3% of the group’s crude production of 29.7 million barrels a day in January this year.

 

Oil is certainly a big concern for Asia’s CFOs, on top of worries about raw material prices, labour costs and inflation. In the CFO Innovation Asia Business Outlook survey for the first quarter of 2011, cost of fuel surged to the fifth spot in the list of top-three external concerns, up from No. 10 in the survey for the fourth quarter of 2010.

 

It’s not just the hit on direct costs. A sustained price rise can have knock-on effects on domestic consumption and other economic activities, and thus on the nascent global economic recovery. In forecasting global GDP growth of 4.4% this year, the International Monetary Fund assumed oil prices of US$95 a barrel. Analysts at Bank of America Merrill Lynch and Deutsche Bank say the expansion can come under threat if oil ends up at US$120 a barrel instead.

 

For now, oil has not yet reached that point. On February 25, prices fell back to around US$97 as Saudi Arabia (share of OPEC crude oil production in January this year: 28.4%) announced its readiness to fill any shortfall in production. As well, the International Energy Agency, comprising 28 nations including the U.S., France, Germany and Japan, pledged to release emergency oil stockpiles if needed.

 

But triple-digit oil prices remain a distinct possibility. While a popular revolt appears unlikely in major oil producer Saudi Arabia, one cannot be ruled out. On February 27, 119 academics, activists and businessmen signed an open letter to King Abdullah complaining of corruption and nepotism, and demanding reforms. A Facebook campaign has been launched calling for a ‘Day of Rage’ in Saudi Arabia on March 11.

 

Youthful protestors are also trying to force regime change in Algeria (4.3% of January 2011 OPEC production), with rumblings in Iran (12.3%), Iraq (8.8%) and non-OPEC oil producer Bahrain. If they succeed, there will almost certainly be a period of uncertainty as new power holders settle into the business of governing and the deposed elite try to get back in.

 

Even if the status quo is maintained, there could also be volatility as the wounds of the recent past fester and the surviving rulers come under pressure to deliver on new expectations. President Hosni Mubarak of Egypt and President Zine el Abidine ben Ali of Tunisia have stepped down, but the political wrangling in the two countries continues to rage.

 

A rise in oil prices is expected, in any case. Merrill Lynch said in January that it saw oil “potentially breaking through $100 a barrel as we enter 2011” because of a global economic recovery. But analyst Francisco Blanch also wrote that he expected prices to average US$78.50 a barrel in the first half of this year. If the average price, in fact, is much higher, there could be economic repercussions around the world, including Asia.