The collapse in the price of Oil

A colleague showed me some documents which he thought proved that oil
price will go as high as US$200. It was a very long report on the
economy published in May 2008.

I believe this may have led to the sudden increase in the price of oil
recently.

If you read the facts carefully, you should come up with the
conclusion that the price of oil will not increase suddenly, but that
report put the figure up to the end of 2008 by using estimates that
are grossly exaggerated.

The demand for 2008 increases rapidly compared to 2007, while
production increases very little. These are just estimates based on
some factors quoted as the increase in demand due to the Peking
Olympics. Instead of increasing the use of Oil in Peking, the Chinese
government had prevented vehicles from travelling in major parts of
Peking.

With the sudden increase in the price of Oil, demand was curtailed
even faster. The report didn't take this into account seriously.

Even better things happen. Many nations, including Malaysia is
beginning to abandon the Subsidy mentality that afflicted ALL
developing nations, and slowly gear themselves towards the WELFARE
mentality of the developed nations.

Instead of giving money to the suppliers, governments are giving money
to the citizens.Indonesia has gone even further by giving money to all
citizens instead of just car owners as in Malaysia. No wonder there is
little protest in Indonesia.

Hopefully, more nations will achieve the developed status by realising
this simple fact. Follow the economic practises of the developed
nations instead of following the non-developed nations, if you want to
be developed. This lesson should be learned by Iran that is rich in
Oil and yet suffer from severe inflation as a result of too much
subsidy on Oil.

http://groups.google.com.my/group/soc.culture.malaysia/post?hl=en
Crude Oil Falls as Hurricane Dolly Misses Fields, Dollar Gains

By Christian Schmollinger and Nesa Subrahmaniyan

July 23 (Bloomberg) -- Crude oil fell for a second day in New York
after forecasters expect Hurricane Dolly to miss fields in the Gulf of
Mexico and the dollar rebounded, curbing investments in commodities.

Dolly is headed for northern Mexico and southern Texas, and the dollar
gained against the euro on signs U.S. interest rates may increase. Oil
futures have declined more than 15 percent from a record $147.27 a
barrel on July 11 as U.S. gasoline use fell for a 13th consecutive
week.

``There's a sense of relief from a hurricane track that keeps the Gulf
oil production in pretty good shape,'' said Gerard Burg, energy and
minerals economist with National Australia Bank Ltd. in Melbourne.
``We've seen that prices near $150 were near the top of what consumers
are willing to accept.''

Crude oil for September delivery fell as much as 87 cents, or 0.7
percent, to $127.55 a barrel, and traded at $127.82 at 1:55 p.m.
Singapore time on the New York Mercantile Exchange. Futures are up 71
percent from a year ago. The August contract expired yesterday after
declining 2.4 percent to $127.95 a barrel, the lowest settlement price
since June 5.

``That's been a realization to the market that prices reached the top
of what could be accepted in the short term,'' said National
Australia's Burg.

`Bears in Control'

The number of outstanding oil futures in New York dropped to the
lowest in 17 months as oil companies, refiners and institutional
investors exited the market. Open interest fell 2.6 percent July 21 to
1.23 million contracts on the Nymex, according to data from the
exchange.

``The bears have taken control for now and there are increasing
worries about demand growth,'' said Victor Shum, a senior principal at
Purvin & Gertz Inc. in Singapore. ``The market is very U.S.-centric,
and while the bill on speculation is nebulous, it may still take some
people out of the market.''

U.S. gasoline demand fell 3.3 percent last week from a year ago, the
13th consecutive weekly decline, as Americans react to record pump
prices by driving less, a MasterCard Inc. report yesterday showed.

Gasoline for August delivery fell 2.11 cents to $3.1259 a gallon in
New York at 12:20 p.m. Singapore time. Yesterday, it dropped 7.01
cents, or 2.2 percent, to $3.147, the lowest close since May 8.
Futures reached a record $3.631 a gallon on July 11.

Pump prices are following changes in futures. Regular gasoline,
averaged nationwide, fell 1.4 cents to $4.055 a gallon, AAA, the
nation's largest motorist organization, said yesterday on its Web
site. Pump prices reached a record $4.114 a gallon on July 17.

Hurricane Impact

Dolly strengthened over the Gulf of Mexico and became a hurricane.
Offshore fields in the Gulf are responsible for about 25 percent of
U.S. oil production. Sustained winds strengthened to 80 miles (1,320
kilometers) per hour, the U.S. National Hurricane Center said in an
advisory at 10 p.m. Houston time.

The storm is traveling northwest and the eye is expected to make
landfall about midday tomorrow.

Oil producers shut about 4.7 percent of production in the U.S. Gulf of
Mexico, as they evacuated personnel from 49 platforms and six rigs in
preparation for the storm, the government's Minerals Management
Service said yesterday.

Petroleos Mexicanos, the third-largest supplier of crude to the U.S.,
evacuated 66 workers from an oil platform in the western Gulf of
Mexico.

U.S. crude oil and fuel production plunged and prices rose to records
when hurricanes Katrina and Rita shut refineries and platforms as they
struck the Gulf of Mexico coast in August and September 2005. Katrina
shut 95 percent of offshore output in the region. Almost 19 percent of
U.S. refining capacity was idled because of damage and blackouts
caused by the hurricanes.

Dollar Gains

Brent crude oil for September settlement fell as much as $1.20, or 0.9
percent, to $128.35 a barrel on London's ICE Futures Europe exchange.
It was at $128.86 a barrel at 2:05 p.m. Singapore time.

Yesterday, it dropped $3.06, or 2.3 percent, to settle at $129.55 a
barrel yesterday, the lowest since June 5.

The dollar traded near a two-week high against the euro at $1.5795 at
12:07 p.m. in Singapore, after rising 0.9 percent yesterday and
touching the strongest level since July 10.

Senate Democrats cleared the first hurdle for legislation to curb
energy market speculation. Legislation won approval to proceed to
debate, in a 94-0 vote yesterday. Democrats said the measure could
reduce oil prices as much as 50 percent.

The legislation requires the Commodity Futures Trading Commission to
impose limits on speculative trading in oil and natural gas futures
markets. It also requires more reporting in energy markets to prevent
market manipulation.

U.S. crude-oil stockpiles probably fell last week as near- record
prices and low profit margins discouraged buying by refiners,
according to a Bloomberg News survey of analysts.

The Energy Department is scheduled to release its weekly report
tomorrow at 10:35 a.m. in Washington.

To contact the reporters on this story: Nesa Subrahmaniyan in
Singapore at nesas@bloomberg.net; Christian Schmollinger in Singapore
at christian.s@bloomberg.net.
Last Updated: July 23, 2008 02:11 EDT

Debate: Anwar vs Shaberi(Sabahan view)

http://limadang.com/2008/07/15/dato-anwar-vs-dato-shabery-debate-on-how-to-decrease-fuel-price/#comment-13050

Go to the above blog in order to read my comments and others in Sabah.

Why Petrol Price is Too High?

The article below may give an insight into the reasons why the prices
of petrol have gone up.

It is not easy to grasp.

I attended a talk on investment which includes a discussion on why the
price of petrol has gone up. I brought along my 2 children who attend
tertiary educational institutions. Both have scored As in English and
Maths.

Whey we got home, I asked them if the price of petrol will go up?
Both said that it will definitely be quoting the normally publicised
reasons, i.e. the lack of petrol due to over consumption. This is
contrary to the information given at the talk.

Just imagine how common people will understand the situation. My two
children are among the top students and yet they seem so ignorant
despite having attended a 3 hour session, which includes some basics
in investment strategies.

The fund manager does not make a decision on whether the price of oil
will go up or not but he gave these useful indicators:

1) there is no shortage of petrol as judged by the petrol stations and
general availability in world markets,
2)the future price of petrol is higher than current price in the spot
market,
3) hedge funds(i.e. unit trust companies) start trading in commodity
recently.

Despite the availability of supply, someone is buying lots of petrol
and storing them somewhere. There is a limit to how much you can store
if they are not used up.

With the removal of subsidies in petrol, there will be a tendency
towards less consumption.

My opinion is that, with the recent rapid rise, there will be a rapid
decline but the price of petrol will be higher than in 2007. The
reduction in consumption will not be enough to lower the price of
petrol.

http://www.washingtonpost.com/wp-dyn/content/article/2008/06/22/AR2008062201865.html

Obama Targets Speculation On Energy

By Anne E. Kornblut
Washington Post Staff Writer
Monday, June 23, 2008; Page A04

Sen. Barack Obama rolled out a proposal yesterday to curb speculation
in energy markets, which his advisers said would help stabilize
soaring gasoline prices.

The presumptive Democratic presidential nominee laid out a four-step
program that would, among other things, close an "Enron loophole" that
protects some trading in energy futures from federal oversight, his
advisers said.

Subsidy or Cash?

This is an excellent article on this topic.

I don't understand why political parties don't use it as part of their
campaigns.

Malaysians must get rid of themselves of the subsidy mentality,
thinking that these subsidies are for free. Instead of demanding
subsidies, they should demand cash instead. The savings that the
government got from removing subsidies must be returned to the people
via cash handouts.

This is very important for Malaysia because it is the only way we can
save this nation. Too much subsidies will cripple our nations. Cash
handouts is also a form of subsidy but it is much more effective in
alleviating the hardships of the people instead of the wastes that
subsidies creates. It is also the most effective form of social
welfare and easiest to implement.

The easiest form of such handout is just an equal distribution of cash
to everybody, regardless of income and age. It means that infants will
get as much as adults. Everybody will a winner except those who waste
petrol. For tax payers, it is just a rebate for them. For non-tax
payers, they will receive cash from the government.

http://www.malaysiakini.com/letters/77041

Use petrol subsidy to subsidise poor
Noor Hamzah | Jan 15, 08 3:00pm

I do not support commodity price subsidy. Full stop. Subsidy on the
price of an essential item, be it rice, sugar, water or petrol and
diesel will only skew the consumption behaviour of consumers.
Consumers tend to consume more of the subsidised item, which has been
made relatively cheaper that other alternatives. This makes
alternative products uneconomical as they are unable to compete based
on price.

True, petrol and diesel are the basic necessities for downstream
products. Anything that requires transport from the producer to
consumer more than likely has the petrol component included in its
final price offered to consumers.

So the theory goes that by subsidising petrol and diesel, other goods
and services will not increase in price. How true. But that stance
doesn't encourage consumers, ie. the Malaysian people, to search for
alternatives. By alternatives, I do not mean just biodiesel.

What if we change the way we do things? Do we have to commute everyday
to offices, factories and drive our car to supermarkets to buy food?
Do we have to drive our kids to school every morning? What if we
collectively find other ways to reduce petrol consumption? Its price
is the big determinant that will push us to change our way of doing
things.

The poor villagers on bicycles do not have much use for the petrol
subsidy as the city dweller in Taman Tun Dr Ismail in KL who has four
cars in the porch.

Let us consider this scenario, let's say the government tomorrow
removes the subsidy on petrol and diesel. So prices rise to the world
market price of about RM2.60 a liter for petrol. So a raft of other
products and services would also increase in price such as food
prices, bus fares and transportation costs.

People would then change their way of doing things. And firms would
also change their way of doing business. I would expect people would
make less shopping trips besides reducing their commuting. Firms would
do more of their business online, and their office workers would do
most of their work online from home, reducing the need to commute to
office.

In my opinion, we have to move on and accept the fact that oil prices
will stay high up for the foreseeable future. Let's accommodate that
into our planning for the country. The sooner we accept that the
better.

Now, what will the government do with the billions of extra oil
revenue? Surely, you can't just use it to buy another Scorpene
submarine or two? That will be the time for the government to announce
that it will subsidise poor Malaysians earning below a certain amount
to relieve them of their burden.

Najib Razak, do announce that the government will give RM200 a month
to lower income Malaysian households, on a per household basis
provided that the combined income is less than RM1,500 a month. For
those with household incomes higher than RM1,500, the subsidy should
be on graduated basis with no subsidy for households earning over
RM3,000.