Oil prices: The good and bad news

Over the weekend, Federal Reserve Chairman Alan Greenspan told a congressional committee there is little that can be done about rising oil prices except possibly diplomatic efforts to encourage oil producing nations to increase production. President Clinton was sufficiently worried about rising oil prices and peeved with OPEC to threaten using the strategic reserves of the US to force down oil prices.

The rise of oil prices to the level of $30 a barrel at the New York Mercantile Exchange has made even the world's only remaining super power to feel a sense of helplessness. The US President warned OPEC that the stability of world economies, including the economies of their own countries, are at risk if the rising trend of oil prices continues.

Sufficiently inflamed, a superpower should have enough options in dealing with mostly developing nations who happen to be oil rich. As for countries like us, accounting for less than one percent of total world oil demand, we can only let off steam and make noises about putting up an oil exchange. Big deal!

But there is good news. The good news is, the price of oil at the New York Mercantile Exchange is not the price by which we acquire our supply. The $30 barrel oil quoted in business stories late last week is only indicative of the direction in prices. But the price of West Texas Intermediate, the $30 barrel crude in question, is normally several dollars higher than the composite price of the oil imported into this country.

Energy Secretary Mario Tiaoqui told me last Friday that as of that date, the price of crude imported by oil companies operating here was on the average, at the level of $24.40 a barrel. Prior to Friday, the price breached $25. Does this mean the trend is downward? Secretary Tiaoqui hopes so. I understand he is hoping it will soon be down to the $22 or even $20 a barrel level or even lower.

The bad news is, the psychological impact of rising oil prices may have started to give an upward pressure on inflation around the world. We still remember the bad old days when rising oil prices caused what economists call cost-push inflation. That's inflation caused not by a rise in demand and insufficient supply, but a rise in prices caused by a continuing rise in the price of something as basic as oil.

In his testimony before the US Congress last week, Mr. Greenspan has indicated there might be a need to raise interest rates. Rising interest rates in the US means there will be even less possibility we can attract much needed foreign investments here. That means, there is one more factor that may jeopardize our country's (and the region's) economic development objectives for the year.

The very detailed PSE Report on the BW scandal is very interesting reading, once you get beyond the legalese. It is actually a good piece of detective work, helped no doubt by the computerized nature of stock market transactions. I will excerpt a portion of it, just to give a flavor of the report and an idea of how they did it.

The record of BW transactions during the period June to October 1999 plainly shows that Dante Tan in effect bought back through the market a large portion of the shares he had transferred to various recipients via "over the counter" transactions. Hence, notwithstanding the massive transfer of some 261 million BW shares from his various accounts during this period, at the end of October 1999, Dante Tan still held a total of 237,120,640 BW shares or almost fifty-three percent (53 percent) of the outstanding shares of BW Resources Corp., which is essentially the same share holdings he had as of end June 1999 (54 percent).

It appears that Dante Tan wanted to corner the great majority of BW shares during the period. The record shows that he was the heaviest buyer of BW shares with total purchases of 459,103,600 shares representing 26.62 percent of the aggregate buy transactions compared to his selling transactions of only 179,190,601 shares, representing 10.40 percent of the aggregate sell transactions during the period.

To finance his buying spree and at the same time "squeeze" BW shares out of the market, he entered into "private placements" with several clients of PCCI. This locked-up the shares he sold, thus creating a shortage of BW shares in the market and pushing its price artificially upward.

To induce the investing public to buy more BW shares, he caused a massive transfer of his own shares from the various accounts he maintained with several brokers to numerous clients/recipients in different broker firms. These recipients, who appear to be his associates, thereafter sold the shares through the market.

However, the selling transactions were mostly "done thru" transactions coursed by the broker of the recipient through at least three (3) other brokers. This created the false impression that many clients were trading BW shares in several broker firms. In truth, the sellers of these shares were either dummies of Dante Tan and/or were his associates who had specific instructions on how to unload their shares.

Thus, and as if on cue, a majority of their sell orders were matched with corresponding buy orders of Dante Tan himself. This entire cycle of over the counter transfers to the sale of the transferred shares and the buyback of the same shares by Dante Tan through the market created an illusion that there was an overwhelming demand for BW shares pushing its price upward.

Unfortunately for Dante Tan, however, towards the end of September and the early part of October 1999 when news that Stanley Ho would invest in BW hit the market, the market itself -- this time even without his manipulative pressure as was earlier being done -- pushed the price of BW even higher. Since his brokers had instructions to buy all shares in the market without price limits for Dante Tan to corner the BW shares presumably to sell to new investors, he found himself forced to purchase shares even as its share price reached P107.

Dante Tan then ran out of resources causing the price of BW to plummet down as he could no longer support its high price, and the true market value of the share started to reveal itself. This explains why Dante Tan's trading activity on BW shares was considerably lower during the month of October as compared to his transactions during the earlier months of June to September 1999.

Today's joke was e-mailed by lawyer Katrina Legarda.

A lady approaches her priest and tells him, "Father, I have a problem. I have two female talking parrots, but they only know how to say one thing."

"What do they say?" the priest inquired.

"They only know how to say, 'Hi, we're prostitutes. Want to have some fun?"'

"That's terrible!" the priest exclaimed, "but I have a solution to your problem. Bring your two female parrots over to the rectory and I will put them with my two male talking parrots that I taught to pray. My parrots will teach your parrots to stop saying that terrible and your parrots will learn to phrase and worship."

"Thank you!" the woman responded.

The next day the woman brought her female parrots to the rectory. The two male parrots were praying in their cage. The lady put her two female parrots in with the male parrots and the female parrots said, "Hi, we're prostitutes, want to have some fun?"

One male parrot looked over at the other male parrot and exclaimed, "Stop praying. Our prayers have been answered!"

(Boo Chanco's e-mail address is [email protected])