Higher Oil Prices Weren't Caused By Supply & Demand

Steve Forbes 10.22.08, 6:00 PM ET
Forbes Magazine dated November 10, 2008

For decades the prices of gold and oil have closely paralleled one another. In 2003 an ounce of gold would have bought you 12 barrels of oil. Today that ounce will buy you about 11 barrels, even though the nominal price of oil is almost three times what it was in 2003. Thus most of the oil increase is a result of dollar inflation, not traditional supply and demand.

Big Bubble Popped

Wall street recently crashed and banks folded. The biggest injection of funds from the Feds is arguably ineffective to put the brakes on recession. It is looming in the horizon or maybe it has arrived. Hedge funds exited from their gambling ventures. The big bubble from overspending, securitizing debts and unregulated speculations popped. Now oil is back in the 60 dollar-range. America drove 15 billions fewer miles last month. OPEC is cutting their production to optimize prize. Is the market stabilizing? Expect oil companies in the service sector to get hit especially those who have not secured long-term contracts. Massive investments have been channeled to build rigs and ships. If the oil price continues to go down and oil operators chew slower on their development projects, this would render the new-builts useless.

US college admission is plumetting. This is because thousands of American kids depend on financial aid and loans from banks and other institutions. If money is being channeled to fill in the holes left by the subprime mortgage and bankrupt banks, I gather there won't be much money left for kids to go to college. Doesn't help that tuition cost increases at 6.6% for the last 20 years. It is pricey to go to school in the US. Also, universities generate a huge chunk of their revenue from admission of international students. Because of the recession, expect a lower admission rate for the next few years. Students might choose a better destination the likes of Australia or Singapore.

Meanwhile, people are losing jobs especially in the financial sector. Expect low recruitment of fresh grads in the US for the next few years. Same thing across the causeway.

Back home, Bursa is getting killed and is now below 900 points.

Anwar is still trying to figure out how to get 30 MPs to jump the BN ship and still retain >60% Muslim MPs in Pakatan. By the time he figures that out, it'd be 2013 already, in time for the next election. Take your time Dato' Seri.

Hurricane Ike Aftermath

After Gustav touched down, Ike followed suit with a more devastating foot print causing loss of power and massive flood in Texas. 28 platforms out of 3800 platforms in Gulf of Mexico have been completely destroyed as reported by MMS. The Pride Wyoming worth USD 40M has been reported missing. Her last location was 90 miles offshore Louisiana. Ensco 74 is also nowhere in sight. The 1.3 Million barrels per day-production is still shut in while personnel have been remobilized to platforms and rigs. Most operators are now in eval mode to assess the extent of damages, if any, of their assets. The US has indeed managed this well, after incorporating lessons from Katrina and Rita in 2005 and Ivan 4 years ago.

Districts	Lake Jackson	Lake Charles	Lafayette	Houma	New Orleans	Total
Platforms Evacuated	84	113	119	99	83	498
Rigs Evacuated	9	14	14	20	14	71
Oil, BOPD Shut-in	69,367	35,263	160,059	433,645	565,396	1,263,730
Gas, MMCF/D Shut-in	1,200	816	1,211	992	2,012	6,231

After speculators offloaded some USD 39B worth of funds from crude futures market, the price of crude continues to plummet despite Gustav and Ike's touch of god.

Gustav Came And Went

After massive offloading by speculators on Wall Street, Gustav came and went without hiking up crude oil price. Oil was below US109 per barrel on Wednesday. Wall Street is still trying to convince the general public that speculation on futures and commodities is not the number 1 culprit for the high oil price. It is supply and demand. There is no supply disruption aside from the small supply closure from the Gulf of Mexico (GOM). Contrary to Wall Street, Iran OPEC Governor has announced that OPEC will reduce supply by 1M barrels per day, stating that the market is "oversupplied". Do you trust the American Wall Street sharks or the gung-ho Persians?

The personnel onboard 100 rigs operating in GOM, after lessons learnt from Katrina, were safely evacuated with all wells secured with 1.3Mbpd production. 13 refineries were shut down.

Meanwhile, Exxon is expected to increase production from Sakhalin-1 in Russia (the world's second biggest oil exporter) to 183kpbd. Oil firms are claiming that high taxation in Russia is dampening future prospects in Sakhalin.

Nigeria has been crowned the biggest producer in Africa at 1.92M barrels per day, dropping Angola to second spot.

For those working in South China Sea worried about piracy and hijacking, it is good to know that the Navy finally deployed one warship to Yemen to "monitor the situation", 2 weeks after the seizure of the first MISC tanker. A second tanker was hijacked 10 days after that.

Talk about immediate response time to national security.

Fuel debate Anwar vs Shabery

How did everyone rate the minister vs the former deputy prime minister of Malaysia? The debate started off solid with DSAI harping the same tune of promising the rakyat that the PR would decrease fuel price by 50 cents per L if they rule the country. He would also squeeze additional funds from the subsidies the IPPs enjoy from gas usage for power generation, claiming that TNB has an over capacity of power generation. Dato' Shabery started with claiming PR using the populist stand (why did PR change their subsidy amount? before the debate, they claimed that they're able to reduce it back to RM1.92, now it's RM2.20). When money is allocated for subsidies, the market is distorted and we deprive allocation for other essentials. During the oil embargo by the Arabs following the Yum Kippur war, Tun Razak, the then PM, established Petronas (together with Ku Li as Chairman) to participate in the oil business as to reduce the dependence of foreign oil. The comparison of other oil exporting countries and its income per capita and inflation rates were also discussed briefly. DSAI argued that too many bail outs by the Government occurred that had siphoned off the royalty money and dividends paid by Petronas to the Government (wasn't he Finance Minister involved in several bail outs himself?).

At this juncture, both diverted from fuel debate and talked about demonstrations, and other non-issues. Both did not answer the questions, i.e. when asked about the Tabung Warisan, Anwar talked about governance, transparency and the need to curb corruption. Shabery blamed DSAI for being part of the problem when he was TPM and FM. Shabery claimed that the debate is proof that the government today is more open, not in comparison to the government when DSAI was TPM (is Shabery also indirectly blaming TDM? Perhaps people weren't so keen of debates back then, that was before the youtube and facebook generation). Shabery also claimed that the greatness of Petronas is proof of the greatness of UMNO and the BN government (I dont think this would run well with TSH). That's when I changed channel, played with my 4-yr old. No air, no air.

Next debate: the sale of MV Augusta?

Iranian O&G Development and Drilling in Alaska

Iran is set to drill another 160 wells by March 2009. That would translate into multi-billion dollar investments, heavy mobilization of equipment and man power and potential growth for the economy. Although Total has pulled out of that race, rest assured that many National Oil Cos will participate in this endeavor.

President of Iran has also proposed the use of a single currency to help combat the ailing US dollar affect on oil price. This is both political and economic. This was also echoed by our former Prime Minister on the use of Euro for the industry.

With Iran set to be the third biggest gas producer in the world by 2020 with an estimated production of 620 billion cubic yards, no wonder it is proposing another setup similar to OPEC but for gas producers. How will this impact the politics of gas? We have seen how former USSR countries were held hostage due to the dependence of Russian gas.

Meanwhile, the US is opening up Alaska and the Arctic National Wildlife Reserve to more development drilling activities. This is totally counter productive as the reserves will not satisfy the growing consumption of gas-guzzling SUVs and others. The US alone consumes 25 million barrels a day and produces only 1/3 of it. Senator Obama is ready to set the tone for a new energy policy if installed as the new POTUS such as the use of E85, lowering carbon emission by investing in R&D and manufacturing of fuel-efficient cars (therefore creating a sustainable competition against the Japanese auto onslaught).

No one cares that oil and food crises are world issues

Sat with our branch members yesterday, discussing among other things food and oil price. Many argued with our chief that the government should be doing more to subsidize petrol. Granted that many may not agree with how our chief operates and that he should step down (which is a separate discussion), let's put the facts on the table:

• Oil price is highly driven by hedge funds and futures market. The rise has been almost 50% in the market since early this year versus a mere 10% oil stock gain.
• Endowment funds from Harvard, Yale and Princeton are also the culprits. However US congress has passed bills to restrict hedge funds from manipulating the price of commodities.
  
• Yes, we cannot compare ourselves with Singapore but we need to compare ourselves with other oil producing nations. Firstly, our production is a minute 600,000 barrels per day and consumption eats 75% of that. Although Indonesia produces more, close to 1.1M barrels per day, they sell the cheap shit at the pumps, RON90. Of course, income per capita needs to be compared too, and that's a separate issue. That's all about the well being of economics and the purchasing power of the Ringgit.
• Yes, because of the higher oil price, Petronas makes more profit. Profit is reinvested into acreage outside the country. Should we negate growth for the sake of distribution? That's a classic socialist stand and we're not going there I hope. Why should every walk of life enjoy the subsidy at the pumps? Surely there are better ways for redistributing wealth. The impact or efficiency of the current distribution method is a topic of a separate issue.
  
• Yes, because Petronas is an efficient money making machine, Government makes more year in year out. Petronas is in no position to decide how royalty and tax money is spent. That's up to the Minister of Finance. Even the former Finance Minister was against the former PM on subsidies and now he is promising another false hope that he would give back the subsidy if he is crowned PM. Any populist could do that.
  
• Government subsidizes not just petrol, but education (which is close to RM7B a year and that's just up to secondary edu), scholarships, funds for universities, natural gas for power consumption and cooking, palm oil for cooking, LRT, feeder buses for LRT. Funny how the people who benefit from scholarships and tertiary education are the same people criticizing the Government (let's generalize the term Government, we may argue about the difference in leadership present and past, etc). They should join the struggle and not just become arm chair critics.
  
• Suddenly everyone is interested about how the Government spends our money. Has anyone checked the Budget every year? Has anyone read the 9th Malaysian Plan? Has anyone researched the mid term report by Finance Minister at Parliament? How much do you think we need to pay the salary and pension for more than 1 million civil servants? What's the cost of purchasing equipment and gear for our cops and soldiers to protect and serve? Without subsidies, how much do you think a medical checkup for flu would cost? I reckon no one cares.
• We also talked about government efficiency. My take: we can't just blame the civil servants. We should stream line operations and make it efficient; need to discard irrelevant ministries and merge overlapping authorities. The US has 15 cabinet secretaries managing 250 million people, surely we don't need 31 to manage 26M. This requires balls made of steel and strong political will. Obviously it would not happen in a fortnight especially with the fact that although UMNO is the backbone of BN, they are not a big majority and still requires co-operation from component parties. That is the dilemma.
  
• On NEP: if people are against the NEP, what is a better economic solution to stimulate growth? Should we invite capitalism to dinner? Should we let the strongest and fittest run over the mom and pop shops? It's the same argument with globalization.
  

Leaders need to decide how to balance between satisfying party members and coalition members, serving the Rakyat and making the right not popular decisions. These are monumental tasks and for people who are afraid of losing power, it will be near impossible. Many leaders wanting to make the right decisions may not get the right kind of support from within the party, therefore reluctant to. People outside the party refuse to dirt themselves by affiliating themselves to a party.

Branch level will commence their meetings on 19th July. Remember that who you choose at Branch level will impact those at division level, consequently national level. Make the right choice. I have yet to decide on my choice; it's all about the lesser of two evils.

Adakah tuduhan LIWAT itu betul?

Minggu ini sememangnya hangat, terutama kepada semua yang ingin tahu adakah ini semua konspirasi seperti tahun 1998 atau tidak. Persoalannya ialah, adakah rakyat akan percaya jika ianya betul? Penyokong2 tentunya akan menuduh kerajaan untuk cuba menjatuhkan penasihat (atau "advisor") itu dengan apa2 cara sekali pun. Bagi saya, biarlah pihak berkuasa menyiasat dan mengkaji tuduhan itu. Konsep berani itu benar penting dan tak payah nak lari lintang pukang sini sana kerana kononnya diugut. Masyarakat umum juga perlu ingat keputusan yang dibuat oleh 2 dari 3 hakim dalam kes penasihat satu dekad dahulu.

Persiapan sedang dibuat untuk mengumpul satu juta rakyat esok di Petaling Jaya untuk memprotes harga minyak yang telah dinaikkan baru2 ini. Terpulang kepada rakyat untuk menghadiri atau tidak. Hak berkumpul dan demonstrasi sememangnya sebahagian dari sistem demokrasi. Kita cuma perlu ingat bahawa setiap tindakan perlu dikawal dan jika dibuat diluar batasan, kita perlu berani menerima akibatnya. Tak payah marah2 tentang harga minyak, bukankah DSAI kata beliau akan jadi PM bulan Sept ini dan akan menurunkan harga minyak?

Begitu juga dengan orang UMNO. Orang UMNO perlu fokus dan mengingatkan diri bahawa sandiwara ini sementara sahaja. Biarlah pihak berkuasa menyiasat. Kita perlu ingat bahawa sokongan dan kepercayaan rakyat semakin kurang. Ekonomi semakin meleset, bekalan makanan seluruh dunia dalam keadaan kritikal kerana kekurangan bekalan, penggunaan tanaman untuk biodiesel dan sebagainya. Nilai mata wang Amerika semakin merosot dan ini akan menjejaskan perdagangan antarabangsa. Harga minyak mungkin akan melonjak ke paras US 200 setong. Jika kerajaan tidak mengambil langkah untuk memantapkan ekonomi, tidak mustahil kita akan kalah dalam PRU-13. Bagi saya, kepimpinan amatlah penting. Kepimpinan BN bermula dari kepimpinan UMNO. Kepimpinan UMNO akan ditentukan oleh perwakilan bahagian ke Perhimpunan Agong. Perwakilan bahagian ditentukan oleh ahli2 UMNO itu sendiri. Buang yang keruh, ambil yang jernih.

Of Young Professionals in politics, Oil news and UMNO elections

On attracting the Young Professionals: we've been asked to engage our young professional friends to get feedbacks on current political scenario. Whether it's positive or negative, any constructive idea or feedback to strategize the way forward is welcomed. Many have spoken about membership drive, leadership qualities, wealth distribution and social contributions. Above all, the young ones want to move forward and react to the situation, not just firing out rhetorics. How should we move as one? Remember that participation in politics does not necessarily mean holding positions in the party. Membership also plays a big role, especially when you are empowered to exercise your voting right to choose the right leader.

TDM has touched about the coming global recession and the 3F crises (food, finance, fuel). It's amazing that our media touches lightly on these important issues, especially when everyone is glued to the tv on who has done who and who has said what about who. I gather this will go on until either MPs hop in September and crown DSAI as our PM or when UMNO has completed its election in December. Until then, no one is truly worried about whether crude price will reach USD200/bbl or how to combat the depreciation of US dollar by minimizing the damages on our economy. Many have suggested switching investment to Europe and using the Euro for oil & gas transactions, considering that US dollar is widely used in the business.

Chevron recently was fined USD30M with corruption for giving kickbacks to SH in return for lucrative oil purchase. What is USD30M compared to the revenue generated from the oil purchase.

On UMNO: At Division level, many are rumored to challenge the current regime. 14 Divisions in Kelantan and almost all Federal Territory Divisions will see a contest for Division Chief position. Johor will also see their fair share where some division chiefs will be challenged. At national level, people anxiously wait for announcements for top guns to contest the two top posts. We already know 14 will contest for the 3 hot Vice Presidencies.

At UMNO youth level, it seems that there will be a 4-cornered fight for the Youth Chief post.
Putrajaya Division will also see some action with a 3-cornered duel. Expect another exciting election year. Selamat bersidang.

For the property market, some have advised not to acquire assets until at least 1Q09, fearing chaotic market sentiments after the UMNO elections. Bursa was shut down today for 'technical reasons'.

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!

Ketelusan dan perancangan ekonomi

Salam sejahtera, saya telah mendapat permintaan untuk menulis dalam Bahasa Melayu supaya dapat menarik lebih ramai lagi pembaca.

Pertama sekali, saya tertarik dengan artikel mengenai audit yang dibuat ke atas wakil2 rakyat di Amerika Syarikat. Akaun2 kewangan calon presiden di Amerika Syarikat diawasi oleh rakyat dan media termasuk pelaburan2 yang dibuat. Untuk kerajaan mendapat penerimaan yang baik, kita patut selidik bagaimana ini boleh dibuat di Malaysia supaya wakil2 rakyat mempunyai 'accountability' yang lebih tinggi tahapnya. Ini patut menjadi matlamat yang 'ideal' dan mungkin ada cara yang 'practical' untuk merealisasikannya.

Kedua, dengan kenaikan harga minyak yang tinggi di pasaran dunia, perlukah kita mencadang pembinaan projek2 yang tidak membawa kebaikan dalam jangka masa pendek seperti pembinaan tapak pelancaran roket di Sabah? Kita perlu meneliti program2 untuk memajukan 'alternative energy' atau sumber tenaga alternatif supaya negara tidak bergantung kepada petroleum sahaja. Insentif perlu diberikan kepada pengguna umum yang menggunakan gas untuk kenderaan mereka termasuk pemandu teksi. Pembinaan stesen NGV perlu digiatkan lagi supaya ada lebih 'access' kepada bekalan gas. Walaupun saya setuju dengan pengurangan subsidi untuk petrol, saya berharap kerajaan akan terus meneliti polisi2 untuk mengurangkan lagi beban masyarakat, mungkin dari segi mengurangkan bayaran tol, cukai pendapatan, menaikkan cukai ke atas syarikat2 minyak dan gas dan sebagainya.

Sabah sesuai jadi tapak pelancaran roket (Utusan Melayu 11 Jun 08)
KUALA LUMPUR 4 Jun - Kerajaan mengenal pasti kawasan pantai timur Sabah terutama di sekitar Tawau berpotensi untuk dijadikan tapak pelancaran roket.
Timbalan Menteri Sains, Teknologi dan Inovasi, Fadillah Yusof berkata, kajian terperinci perlu dilakukan bagi memastikan pembinaan tapak tersebut tidak memberi kesan kepada alam sekitar.

Beliau juga menjelaskan, kerajaan buat masa ini masih belum mempunyai cadangan yang kukuh untuk membangunkan pusat berkenaan.

"Untuk membina pusat pelancaran, beberapa perkara perlu dipertimbangkan dan yang penting adalah kesesuaian tempat tersebut.

"Antara keperluan tapak pelancaran roket ialah ia perlu mempunyai kawasan di sebelah timur yang tidak mempunyai penghuni seperti lautan atau gurun.

Subsidy Mentality 02

Points from YB Dato’ Shahrir Samad, Minister of KDNHEP, during a debate with YB Salahuddin Ayob, Kubang Kerian on RTM tonight:

Money saved from reduction of subsidy in 2006 was used up with rising costs due to increase in petrol price

• Profit made by Petronas (not revenue) has been reinvested into assets around the world to ensure sustainability of fuel source for at least 1-2 decades
• Money saved from subsidy reduction this year to be used to subsidize food
• PM-in-waiting DSAI wants to lower fuel price by subsidizing, contradicting his stance against TDM’s policy to subsidize fuel during the 1997 financial crisis and wanting to oblige to IMF
• We cannot continually deprive Petronas of growth by burdening it with subsidies, they have done their part by paying royalty and tax to the Federal Government
  
  My points:
  
• Petronas must be allowed to use its resources as it finds fit to continually support our economy and be allowed to compete with the major oil companies, the likes of Exxon and Shell
• The danger of this is that the royalty and income tax from Petronas constitute almost half of the revenue earned by the Government. We must be serious and committed to create a robust 2nd and 3rd engine of growth now before we run out of oil!
• Alternative energies must be studied and researched thoroughly. Yes, these are not popular alternatives to fossil fuel due to economies of scale but does that mean we should just sit around and do nothing? The results of the research need to be shared with the public more often, as I know that numerous agencies are working on this. Nuclear perhaps (the most misunderstood and 'political' energy source)?
• The network of LRT must be extended immediately. The National Physical Plan launched earlier in 2004 must be revisited and progress must reported.
• The government needs to start thinking about decentralizing KL and develop a second satellite city, perhaps Seremban? This will enable people outside of KL to enjoy economic growth and stimulate job creations instead of just relying on subsidies. Also, the city plan must include massive integration of public transportation the likes of New York subway system, Singapore's MRT or London's tube. It is too challenging to integrate that in KL.
• Taxi drivers must be allowed to charge more and especially during peak hours.

Then again, whatever the government does will be condemned. The construction of Twin Towers and F1 circuit were known to be wasteful, now they are deemed as icons of Malaysia. TDM was heavily criticized during his premiership, dubbed cruel and undemocratic. Now people 'miss' him being the PM. Can you ever win with the Malaysian people? No wonder we are far behind.

Energy shortage

• South Korea handing out US$10.2B to its lowest income citizens. The package will benefit 13.8 million people, which includes tax rebates for 78 percent of the country’s workers who earn less than US$37k a year. Govt will also pay for 50% of the increase in oil costs for bus drivers, truckers, farmers, fishermen
• “Every head of government across the world is dealing with this challenge now and it goes to global oil supply, in large part, the role of OPEC. OPEC needs to open the production lines to a greater extent. The G-8 provides an opportunity to apply the blowtorch to OPEC – and it’s time that happened”, Australian PM Kevin Rudd
• “Let’s not kid ourselves. There is one big gorilla in this market on the demand side, and it’s the US. We use three times as much oil as China with one-quarter of the population”, Severin Borenstein, a business and public policy professor at UC-Berkeley, who also directs the university’s Energy Institute
• “It’s a shock, but if you look at the rate of oil production globally, it has been 85 million barrels a day for three years in a row. We know demand is increasing because a lot of nations are still subsidizing oil, which ought to stop”, US Energy Sec, Sam Bodman.
  “Oil prices are surging not because of supply shortage, but because of massive liquidity” Mr Toshinori Ito, sr analyst at UBS Securities, Japan referring to the influx of financial funds into markets, helped by low interest rates.
• In Alabama, city officials have implemented a four-day week for 2,400 municipal workers and later for some 1,000 cops and firemen. This translates to about savings of USD1M. Minnesota to follow suit and save 1% of their budget from transportation cost – imagine that happening in Malaysia…. Not a chance!
• Airlines in India made combined loss of USD938M last fiscal year to Mar 08, urges for consolidation
• Japan’s PM’s house is the first fuel cell-powered home way back in 2005, residents urged to install at their homes
• Iranian drivers of luxury cars can no longer purchase subsidized fuel (currently priced at RM 0.36 per L).
• Price for oil by-products has increased. People should start minimizing usage of take-away Styrofoam and plastic bags and hawkers are urged not to force consumers to absorb the price increase – Better solution, don’t eat out.

taken from Straits Times, 9th June 08.

The subsidy mentality

YAB PM has announced that the price of petrol has to be increased to RM2.70 per liter. With the price of crude close to USD 140/barrel, the government has to make this very necessary but unpopular decision. Indonesia and India have recently increased fuel price and getting general backlash from the public. The fact is that the price is dictated by market forces and subsidy will dampen development.

Now that the government has decreased the subsidy, it is now their responsibility to report on what will be done with the surplus resource. This needs to be communicated well and implemented in the best of methods to avoid further backlash.

Of late, we hear everyone suddenly becoming experts in the oil & gas industry, demanding that Petronas subsidize this and that. Although Malaysia produces some 600,000+ barrels per day, the production is not contributed from Petronas alone. Petronas relies on her partners, the Exxons, the Shells, the Carigalis and others to jointly develop our resources. Royalty money is paid to Petronas and the crude is split according to individual Production Sharing Contract (PSC). It doesnt necessarily mean that the government of Malaysia makes 600,000 x USD 140 = USD 84M/day! The lack of communication to the general public forces people to assume all kinds of formula on how much the government makes from oil & gas production.

After the massive win by PR during the 12th GE, one guy has been pushing hard to get Petronas to subsidize the construction of the second Penang bridge and give out subsidies for low income families. There was also a question about Petronas’ Philharmonic Orchestra and whether the spending is justifiable. Heck, let's just sell the Twin Towers to the highest bidder because it was a wasteful project and auction off Seri Perdana and all bungalows for Ministers and senior Civil Servants.

First of, we need to give a free hand to TSHM to steer the ONLY Fortune 500 in Malaysia without any political intervention. He is the “unofficial” Oil Minister by virtue of Petroleum Act 1974 and he is more than capable to manage the mammoth company. We are lucky to have him because believe me, he is severely underpaid compared to CEOs the likes of ExxonMobil, Shell, Chevron. I bet you if we increase his pay package, some quarters will start questioning why, why oh why (yes they have questioned why we are paying so much for the Petronas advisor).

Although the price of oil has increased and profit is rising, the cost of drilling wells has also increased tremendously. Rig daily rates can fetch anywhere between USD 100k-700k per day. Construction barge daily rates can fetch up to USD1M/day. We can’t afford to not invest more money in foreign countries as the findings in Malaysia have not been as extensive as before. The country will become a net importer in the years to come thus making it more imperative to increase investment and participation in other oil-producing countries. The subsidy on oil has to be decreased gradually despite pressures from the general public. If oil is expensive, we have to find creative ways to reduce cost.

For daily consumers, we need to find better alternatives to get to work either by taking public transportation, car pooling or buying fuel-efficient cars or converting to NGVs. Complaining will not help the problem. If the price of rice is too much, reduce rice consumption and increase consumption of bread. Inflation will come, it’s a matter of whether we are prepared to face it or not. The name of the game is maintaining competitiveness. If we fail to compete, we are destined to fall. If the local Mamak increases the price of icea Milo and roti canai, don’t go there, simple as that. Market forces will to some extent dictate the true market price.

Yes, people in the low income group will be affected tremendously. I believe Dato' Shahrir Samad is preparing a cabinet proposal to combat this problem. We shall see what the Government is planning and judge later.