Oil prices will jeopardize world economy?

I found it cute that Energy Secretary Vince Perez issued a press release calling on OPEC to moderate rising oil prices. That’s sheer chutzpah. I can almost picture the oil shieks laughing themselves silly as they read of Energy Secretary Who from what-country-is-that-again, telling them what to do about their prices.

Then again, Vince Perez has a point, a very important point that the OPEC big shots may have overlooked in their singleminded determination to keep oil prices above $35 a barrel. Crude oil prices have already risen to highest levels in 13 years. And that puts the world economy at risk, and the fallout could adversely affect even the OPEC members.

An economist from JP Morgan in New York said that if within the next four weeks you don’t see a break in rising oil prices, it becomes an issue for economic growth. As an article in the Los Angeles Times puts it, "by acting like a tax on businesses and consumers, the surge to $38.18 a barrel could imperil the ability of the economy to create jobs."

That’s something to worry about. We all know that "anything that would further impede job creation could depress consumer confidence and threaten the pace of spending." That could mean another downward spin for the US economy that would impact on the rest of the world. The only good result of such a thing happening is that the world may be rid of George W. Bush.

OPEC, however, is not the only culprit responsible for rising oil prices. Speculation on oil futures, by airlines and other large consumers of oil as well as by those who deal with financial instruments based on future oil prices, has also contributed to keeping oil prices high. Some experts worry that the longer prices stay high because of this speculative frenzy, the harder it is for prices to fall back to normal levels.

Then there is "supply-disruption risk." On top of the usual political troubles in Venezuela, Nigeria and Iraq that have long worried those who fear an interruption of exports, we now have fear of terrorism. Terrorists targeting oil infrastructure, such as oil production facilities, port loading facilities and refineries, have become a bigger and newer aspect of this risk.

Let us also not forget basic economics. Demand for oil has also been record high. Global demand is rising at a faster rate than was expected. China and America have combined to put pressure on the demand side. As demand rises while inventories remain limited, the result is more competition worldwide for available supplies, pushing market prices higher. The International Energy Agency raised its forecast for global oil demand in 2004 by 2.1 percent, to 80.2 million barrels per day.

Oil supplies are tighter these days. OPEC countries other than Saudi Arabia have just about maxed out their production capacities and this has minimized their ability to cheat on OPEC quotas. Even the Saudis are also just about reaching their top capacity to produce. This explains the unusual discipline being displayed by OPEC members. They could no longer cheat as much, to produce beyond their OPEC imposed quotas, like they used to.

OPEC – which supplies about one-third of the world’s oil – is planning to cut production in April. That should put even more pressure on the price of gasoline as the summer driving season begins.

It does not help that cost-conscious oil companies have been reluctant to build up inventories for local markets. In the Philippines, oil companies particularly find it difficult to get compensation for added finance costs needed for maintaining larger inventory. The new players are left no option but to raise prices as soon as new shipments come in. They don’t have the leeway of Petron and Shell who operate refineries here.

We all have to face the reality of our times. Government must lead the nation in carefully planning how to address this reality of ever rising oil prices. It is counterproductive to use oil prices as an election campaign issue, as if we can force the prices to go down by denouncing the oil companies and going on transport strikes. The reality is for the oil market to be turbulent for a long time because of strong demand, political unrest and the OPEC production discipline.

It is time to dust up past programs designed to improve greater efficiency in our use of energy. We also need to put greater incentives for the development and use of locally available energy resources. Our economy, bad as it already is, is terribly vulnerable to high oil prices and the potential of supply disruption from terrorist activities. We need a proactive program to minimize our vulnerabilities, just like what we embarked on during the first worldwide energy crisis in the late 70s.

Confidence And Competence

When FPJ was interviewed by my publisher, Max Soliven over his television program, Impact, the movie actor underwhelmed viewers with his utter inability to express himself. In contrast, Ate Glo forcefully delivered her message about the need for competence and experience at the top when it was her turn to be interviewed by Max. She exuded confidence and was in command during the one-and a half-hour live interview from Cebu.

One of her observations could make people have second thoughts about voting for FPJ. She said a President must have the capacity to make an informed final decision after hearing the views of advisers and all interested parties. She is correct to say that if FPJ can’t even show enough leadership to unite the opposition behind him and run a smooth campaign, how can he presume he has what it takes to lead the country? Sincerity alone, even with the help of Ed Angara and a platoon of trained economists, isn’t going to be enough.

Watching her being interviewed by my publisher made me wonder if this forceful leadership the President is showing is just the effect of campaign season adrenalin flowing in her veins. But then again, she did express disgust and frustration with bureaucratic red tape. She explained to Max how she personally intervened to get such projects as the Leyte to Cebu submarine power line freed from bureaucratic gridlock. She sounded pretty impatient and that’s good.

But I was unimpressed with her explanation of how she selects people for appointment to vital positions in government. I still say she has made pretty bad appointments to the judiciary and recently, the Comelec, which betrays how she chose self interest over national good. She also skirted the question about the influence of a particular law firm in the affairs of government.

Still, if all I had to go with is to compare her performance in this interview with the performance of FPJ in the premier telecast of Impact, she wins by a lot more than a mile. You almost want to believe her.

Happily, I have other choices than just the two of them. And so does every one of us.

Japanese Men

From Dr. Ernie E.

What do Japanese men do when they have an erection?

They vote.

Boo Chanco’s e-mail address is bchanco@bayantel.com.ph