IDEAglobal estimates that a sustained 5 per cent increase in oil prices this year would shave 0.4 percentage point off the country's GDP growth.

Global oil prices recently hit 13-year highs, with the benchmark US light crude up over 10 per cent since the start of this year.

Oil prices are soaring worldwide, fuelled by the global economic recovery, some speculative buying by fund managers and strong demand from fast growing countries, particularly China and India.

"These two countries, since the middle of last year, beginning of Q4, have been soaking up a lot of products," said Eswaran SR, Editorial Manager, Oil-Asia, Platts.

"China today is the second largest consumer of products in the world, I would say, country-wise after the US. It has overtaken Japan as the largest consumer of petroleum products in Asia.

"Inventory levels in the OECD countries in the last 2 years have been relatively low, because they dug into their inventories 2 years ago when prices hit their peak. So now, in trying to replenish them, they are only going to boost prices again," added Mr Eswaran.

In fact, global energy information service Platts reckons if the situation remains unchanged, oil prices could hit US$40 a barrel.

For the man-on-the-street, the most immediate impact of higher oil prices is you will pay more for your petrol as oil companies have been raising pump prices.

Utility charges will also be more expensive.

Naturally this means business costs will also go up, especially for exporters and companies in the transportation sector.

Already Singapore Airlines Cargo says it may raise fuel surcharges to cover higher jet fuel costs - something other carriers have announced.

Freight forwarders, which are still feeling the pinch from extra security fees, say the hike in fuel surcharges puts them in a bind.

"For us forwarders, we are in a predicament in a different way because of course we have to support the airlines as our principle to make sure the services continue," said Steven Lee, Chairman, Singapore Aircargo Agents Association.

"But by doing that we also face a hindrance because we collect the surcharges for the airlines but we don't get any commission. And airlines expect us to pay within 15 days but our credit terms with the customers is 30 to 45 days.

"So the forwarders have to manage cash flow in a different manner - more or less indirectly financing," he added.

Companies are not the only ones grappling with the impact of higher oil prices.

Some analysts say it also poses a challenge for monetary authorities.

IDEAglobal estimates that a sustained 5 per cent increase in oil prices this year could push up Singapore's inflation by at least half a percentage point.

Said Nizam Idris, Deputy Head of Research, IDEAglobal: "The impact on both growth as well as inflation could be a tricky combination for policymakers at the moment, given that economic recovery is only at a very nascent stage.

"You don't want to push interest rates higher to handle the inflation but at the same time, you don't want inflation to go out of hand."

IDEAglobal does not expect the Monetary Authority of Singapore to tighten monetary policy any time soon as oil prices are still tolerable at their current levels. - CNA

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