Trade, markets and currencies to suffer if crude costs remain high, say analysts Oil supply disruptions caused by tropical storm Cindy in the Gulf of Mexico and fears of more bad weather later in the week pushed crude prices back above US$60 a barrel in Asian trading yesterday. The 44.9 per cent increase in benchmark US crude futures this year has already wiped out Asia's trade surplus (outside China) and is starting to have a negative impact on corporate margins, say analysts, but so far this has been largely offset by the fact that global growth has remained reasonably strong. Yesterday, export stocks such as Toyota Motor Corp and Samsung Electronics outperformed on the back of stronger than expected United States factory orders data, which were seen to confirm that the economy is still growing at a healthy pace. But if oil prices stay near present levels for the next few months, as indicated by the supply-and-demand dynamic, the impact on growth will be more pronounced. 'If it does lead to slower economic growth, then it will hit everybody, although the impact on Asia will be greater because of the greater focus on manufacturing,' said Markus Rosgen, the head of Asian strategy at Citigroup. The least affected will be telecommunications and utilities. Oil and fuel-intensive industries will take the biggest hit. Oil producers will be the key beneficiaries - PetroChina and CNOOC closed at record highs yesterday. Nymex crude for August delivery was at US$60.50 per barrel in late morning trading in New York yesterday. It started approaching last Monday's record of US$60.95 after higher than expected imports and refined US inventories had seen it fall to a two-week low of US$55.90 last Thursday. However, the optimism did not last and heating oil futures hit a record high of US$1.765 a gallon in New York yesterday on renewed concerns that US refineries, already operating near full capacity, will be unable to meet demand when temperatures fall in the fourth quarter. 'Oil is probably one of best commodity markets at the moment [for investors] because there isn't really much new supply available in the system, the market is very vulnerable to demand and any news of disruptions in supply - such as the cyclones in the Gulf of Mexico - is going to be reflected pretty quickly in the price,' said Mark Pervan, a commodities analyst at Daiwa Securities. The price was further bolstered by a growing belief that most of the buying of oil futures at the moment is generated by real demand - driven in part by energy-hungry China and India - as opposed to speculative activity. The effect of high oil prices on Asian companies was likely to be stronger in the second half of the year, given that there tended to be a lag of 18 months before they hit the real economy, Mr Rosgen noted. However, the impact on sales volumes is evident in a sharp slowdown in Asian exports over the past few months, he said, and projected that Asian earnings before interest and tax margins would decline by 1.5 to 2 percentage points this year, from about 14.5 per cent last year, on increases in the price of oil and other commodities. As the effects of oil prices hit home in the next few months in the form of rising import costs, pressure on Asian currencies will also increase, according to Stewart Paterson, the chief Asian strategist at Credit Suisse First Boston. 'During the latter part of last year and early this year, foreign capital flooded the region, driven by the belief there was a one-way bet on Asian currency appreciation. If capital flows reverse due to deterioration in the balance of payments and seven months of US dollar strength, equities could sell off dramatically,' Mr Paterson said.