Sunday, June 29, 2008

Curbing the oil price

US congress has recently approved bills to help combat speculation at Wall St that could drive crude price further up. Although the US is producing some 8 million barrels per day, it's consumption far surpassed the consumption of Asian countries put together (minus China of course), 3 times it's production rate. Although the production is huge and national oil company is non-existent, US citizens have never in their history demanded subsidy form the government for petrol purchase (or "gas" as the Americans call it from the word gasoline).

On a different note, Saudi has pledged to increase production to help lower the price; the $140-question is whether it could affect the price. The creation of US strategic petroleum reserve during the oil embargo decades ago proved that no one could stand a chance except for OPEC in influencing oil price (perhaps the stockpiling of some 1B bbls of crude in US and Japan needs to be also challenged). Perhaps the liberation of Iraqi oil and withdrawal of troops could calm the current hysteric market but then again, who knows what will happen. Chief Executives of some majors have officially and unofficially declared that the oil price should be in the region of USD70-90 per bbl. Whatever the reasons for this high oil price are, we are probably stuck with it for at least the next 6-18 months (that's me guessing of course and I'm no economist or analyst).

Chatting with some friends over teh ais yesterday, most were adamant that Petronas should be 'more transparent' in their accounts and that the subsidy reduction should have been implemented in stages. This is consistent with feedbacks from office folks, cabbies, the guy sitting next to me on the plane, neighbors, etc. Most do not agree with the subsidy reduction. Pity Petronas staff who have to put up with answering lots and lots of questions. Their bonus this year would also be affected, seeing how the opposition is trying to make everything an issue. Cabbies also disagree with subsidizing buses as they feel they service the city folks more efficiently than buses, therefore they are entitled to subsidies.

Malaysians being Malaysians, the old sensible plan of attack is to demonstrate. We've had demostrations led by PAS earlier and recently by Geramm (what a name). We'll have another giant demonstration next month which some have claimed to be a-million strong supporters. Some quarters claimed that they would increase the subsidies again if in power and have a magic formula to cure this mild recession. These are the same guys advocating international monetary entities to 'bail Malaysia out' from the Asian economic crisis. Imagine the Ringgit depreciated like the Rupiah - we'd all be millionaires!


Anonymous said...

Pitfalls in your argument:
1. Comparison with US: a. US is a net exporter, with a per capita of 45k US, versus Malaysia a net importer, with 13k US per capita. The purchasing power parity comes into play here where with 45k US, oil price is only 4 US/gallon which is only 1.33 US/liter.
2. Malaysia makes more money with higher oil prices. If money is channeled in projects, only the middle class will enjoy it. subsidies give every single person in the country a helping hand, regardless of race.
3. Demonstrations are the essence of democracy, people's power, not politician's power.

opcharlie said...

helo mr adrin shafil, thank you for the comments. yes, the purchasing power argument is quite popular, especially for economies generated by some 250 million people or perhaps the 4 million down south.
2. the classic argument is why should the rich and middle be subsidized when subsidies distort market forces. let's suggest something to dss then. the other is this: arms sales because of oil price far exceeds what malaysia makes from rise of oil price. eisenhower's MIC.
3. demos are essence of democracies but they are also misleading because 'professional' demostrators make money out of it, not the 1-million strong followers. happy to explain offline.

anyway, in politics, it all boils down to the lesser of two evils.

reformasi2nd rd is in the working. we know who talks the talk, let's see who walks the walk.

bats said...

hello mate,

good times all around. love the political horsecrap that is anything but beneficial to the ground dwellers of the country (me and most other people i know)

while it's all well and good to have petronas drop their pants, i mean, open their books, i'm more interested in what happens to the money petronas gives to the government, being a GLC and all. i reckon the government's books should be opened. of course, they can keep their intel docs and all, but when it comes to taxpayers and petronas's money (it belongs to all malaysians or something right?), we have the right to know. demokrasi maaa... plus, we've got many amongst us qualified enough to tell us if we're being screwed or straight up gang banged.

as for petronas, the great money churners, well, they oughta streamline their business, lose the excess weight, or stop whingeing and get on with it. their call.. they are a business, not a charity.

finally, love what you're doing here with the blog and all. keep it up, brother.