Rebound in oil prices not entirely negative for SL: StanChart

By Shabiya Ali Ahlam
Standard Chartered Bank’s (StanChart) global research team sounded bullish on the currently volatile oil prices reaching US $ 70 per barrel towards the end of the year, a development, according to its analysts, would not entirely be negative to Sri Lanka.

With South Asia consisting of countries that import oil in massive volumes, an increase in price would result in the economies taking a hit, but would help improve the overall external sector position, they pointed out. 

“Sri Lankan and India, both import high volumes of oil, and for them a rebound in prices will be negative. However, these countries will benefit as such improvements would help reduce the risk of remittances collapsing,” said Standard Chartered Bank South Asia Economic Research Head Anubhuti Sahay in Colombo last week.

In Sri Lanka’s case, almost 55 percent of remittances come from the Gulf Corporation Countries (GCC) and oil prices hovering at lower levels is said to pose a significant threat.

Foreign institutional investment (FII) inflows being cut across emerging markets due to bearish sentiments, a rebound will help both Sri Lanka and India benefit from FII, while stability on foreign exchange could be gained, the senior economist noted. 

Standard Chartered Bank (Asia) Chief Economist David Mann asserted that critical at this juncture were sentiments. “If we do get this rebound, we can finally get a steady rise in demand, exceeding supply. If that is strong, then it is not going to be seen as bad news, even if we get it up to US $ 60 per barrel by this year,” said Mann, while emphasising that volume versus value was the critical factor.

According to the analysts, rebounding of value when volumes are maintained at high levels would allow economies to witness “a lot more positive surprises”.
“That would be a sign of growth and remaining solid. Even when the US is not doing strong,” professed Mann.