The Philippines’ President Gloria Arroyo had signed Executive Order 839. This Executive Order mean for prices of oil in areas ravaged by typhoon in the Philippines to be fixed. In so doing, the astute politician in Arroyo trumped her PhD in Economics. Naturally, business groups in the Philippines want fuel price freeze lifted.
The price and supply of oil is hotly debated the world over. Just look at this chart which you can find from oil analyst gregor.us:
Free Market Oil has dropped by over 2 million barrels per day since December of 2003. If your professor or your local economist or perhaps national newspaper is still pounding the table that supply always makes a response to price–even in natural resources. -gregor
Just so we’re on the same page, December delivery of oil, as of this writing is at US$77.43 a barrel.
Philippine journalist Ricky Carandang wrote in his blog that Arroyo repealed the law of supply and demand and argued that:
the Arroyo regime continues to force pump prices at levels below the market price, it will eventually lead to a shortage. And that’s what we’re begining to see. Gas stations may not call it that, but they are already rationing fuel and are now threatening to stop importing altogether.
How then can one do business in the Philippines when the law says the Oil Industry is a deregulated market and government itself does another?
Oil companies are under threat to be sued under economic sabotage. If there is anyone that needs to get sued, under economic sabotage it is Gloria Arroyo and this economic self destructive policy.
What if Executive Order 839 isn’t about the price of oil or its supply?
EO 839 is a populist move. It is easy enough to see that this is done under the guise of compassion, “to protect the poor” and victims of the recent typhoons from market forces. It is a false oasis. This road leads only to greater hardship down the road. It appeals to shortsightedness and reveal greater uncertainty in the market place. In fact, EO 839 only strengthens the perception that the Philippines is unstable and that the law is bendable at any given time. If the Philippines was at all serious about solving its energy problem, then it should accelerate plans to be less oil dependent. That is what a responsible economic manager ought to be pursuing.
What if this has has little to do with the Price of Oil or about rebuilding the damage of the recent typhoons? What if this has nothing to do with improving the lives of Filipinos ravaged by typhoon and poverty? With Arroyo, by law, set to complete her term of office by June 2010, and her party’s candidate trailing surveys, is it a stretch to say that this is a scorch earth strategy to make it difficult for the next president to do anything at all?
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This post first appeared on Emerging Voices.
Popularity: 2% [?]
The inability of the government to control oil prices is a consequence of Deregulation and Privatization.
what do you mean? in what sense can the government control oil prices?
If there was still an Oil Price Stabilization Fund.
cvj, government has no fund to speak of for anything other than housekeeping. hell, BIR will fall below target. hence, it can not afford a price stabilization fund.
I also think it is the wrong way to go. it isn’t beyond the realm of possibility that next oil price, we could see hundred dollar oil. As you can see from the chart above, that’s the amount of production 60% of the world’s oil producing nations have sent out since 2003. Even at the height of near 150 oil, these countries have not produced the same amount they did in 03 nor dropped production.
The Filipino will simply be throwing money down the drain with a price stabilization fund. imho, the right path to go through is investing in alternative energy sources. we must find a way also to crush the monopolies on power and water in the same way that the Internet is crushing old media. Which is to say that one day each household must generate its own electricity. I don’t think that is beyond the realm of possibility at this point since there are technologies being developed to make that a reality. if there is something the Filipino must buy into, it this that kind of technology.
Cocoy, the Oil Price Stabilization Fund that we used to have did not get its funding from taxes. It was self-funding in that oil prices were set higher than the market, so that the excess can be used as buffer. In that way, a spike in Crude Oil Prices won’t necessarily lead to a spike in Pump prices as the government could draw down from this Fund. Since we have done away with this mechanism in favor of market forces, then the government no longer has any leverage. A Stabilization fund is good for business in the sense that, to a certain extent, it shields them from price fluctuations and could plan accordingly. Doesn’t business want stability?
I’m with you on developing alternative energy sources, primarily nuclear, wind and solar but this is another discussion altogether. I don’t think this is relevant to the discussion of whether or not to regulate Oil prices (or the Oil Industry).
oh, in that case, i think the word “control” is too much.
the most the OPSF can do is defer an increase in the price of oil, CONDITIONAL on whether there is money in the fund.
sadly, the fund will likely be consumed in finite time, and will be in deficit MOST of the time, as it was in RP back in the day…
Yeah, control is not absolute, it’s conditional on whether there is money in the fund. This is similar to the principle of managing exchange rates which is conditional on the level of dollar reserves. With oil, it doesn’t have to be ‘sadly’ if the forecast is right. For example, if the anticipated price of oil is 100 USD per barrel, then the price can be adjusted gradually so that the price won’t spike suddenly. With deregulation, the government gave up even that means of control. The question is, was it wise to do so?
not true. if there is a secular rise in the price of oil, ANY kind of subsidy to delay that increase, or even temper it, will deplete the fund, and be the source of fiscal deficit.
there is already not enough cash for programs, price stabilization pa?
moreover, to replenish the fund, you would have to charge HIGHER (via taxes) when the prices are lower.
yes, the idea is to charge higher while the prices are lower so that when the prices rise, it would not be immediate. charging higher prices when the prices are lower is where the cash will come from. if the trend is towards higher and higher oil prices, then there is nothing we can do to keep the prices low but there is value in terms of managing the increase such that it is not too jerky. just because a skydiver has to obey gravity is no reason for not using a parachute.
where we disagree is on whether a ‘parachute’, in the context of oil prices is worth it. in other contexts, i thought that the business community favored stability.
funny thing about metaphors… the reason the parachutist requires a parachute is not coz he’s falling, but coz of the hard ground below!
stability is important, but stability in what? gasoline prices? why gasoline prices, of the universe of prices to stabilize, and this is a good where the government is least able to influence? at what price, this stability?
instead of gasoline prices, lets stabilize the price of electricity, taxation, rule of law.
if the concern is equity/access by the poor, by all means target them directly via direct transfers, targetted subsidies.
So in principle, you are in favor of stabilizing the price of electricity but not the price of gasoline? What’s the difference?
i was trying to highlight the fact that gasoline prices, while important, is one of many different important prices in an economy.
there are many ways for electricity prices to be both lower and more stable. more supply, alternate energy sources, off-peak pricing, etc that doesnt involve subsidization/huge deficits without a return. i’m sure that alot of these things are already embodied in policy.
I believe that gasoline prices should be stable though not necessarily lower. In fact, we can predict that prices will go up over the years so an artificially high price (which at the same time replenishes the stabilization fund) can help encourage moving away from oil as a source of energy. Private vehicles running on gasoline/diesel should give way to electric transport, preferably mass transport. That way, we can avoid the price shocks that will come with depletion of oil supplies.
ah, then lets be clear. if you want to move to other sources of transport power, then by all means, do it properly.
tax gasoline NOW, and with the revenue, spend on infrastructure that would support it, say, recharging stations, etc. this is being done in sweeden, i think.
now, you’d come into criticisms such as “are there social programs that are worth more than this?” but at least, we’d be formulating a program that compare.
Gabby, Oil is being taxed now. it is part of eVAT thanks to the foresight of Recto (and no that wasn’t sarcasm). We also have a road user’s tax, which is meant to fix our roads. my point is this: government doesn’t have the resources to invest at the rate of GDP. The Philippines *is* at that point.
GabbyD, if the tax is in the nature of an excise tax (x pesos per volume rather than a percentage of value), then i think we’re in sync.
Cocoy, it’s a myth that we don’t have enough money to fund these programs. As a medium income country, we have enough today to eliminate absolute poverty, it’s just that it’s too concentrated to a few families. A lot of wealth is locked up under the control of a few Oligarchs (old and new). If we can free these up from them, then funding will not be a problem. Whether we have the political will to do so has always been the question.
What would Noynoy do? What would Chiz do? What did Erap do in his time as president before he was ousted by a coup?
“If there is anyone that needs to get sued, under economic sabotage it is Gloria Arroyo and this economic self destructive policy.” — cocoy
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A glimpse of Noynoy’s thoughts on legal action against GMA:
http://www.verafiles.org/index.php/first-person/373-noynoy-no-point-in-competing-with-my-parents?start=2
whoa! pasensyahan ba…
Up n grad- what GMA will do, for sure, will favor her…not for the people…maybe for you.
The World of Oil Market is a World of Market manipulation
and control of supplies. First we have the OPEC, which can
limit and control the production of oil producing countries.
Then, we have the Oil Speculators who can buy the advance
months production of any oil producing countries. Third, there
is political unstabilties in oil producing countries.
Iran trying to make a nuclear bomb. Iraq still at war. Venezuela’s Hugo Chavez radical Anti U.S. shift. Saudi Arabia
and the other SUNNI Oil producing countries. Uncertain and
afraid of the political saber rattling of SHIITE Iran. Oil
mixed with politics and religious extremism. Not a good
conconction for stable world economy.
Nigeria, one of the oil suppliers. Fighting some
insurgents that claim the Nigerian oil fields belong
to them. All of these factors contributing to the
fluctuation of oil supplies.
The strength of the US dollar also contributes to the price of oil. Right now the policy is to keep it weak because of the huge trade deficit and budget deficit.
Even if it wasn’t against the law (which it seems to me it is), the price freeze, as I heard a commentator on ‘Sentro ng Katotohanan’ mention, can only be effective if the country has an oil reserve to stabilize the supply side of the equation. As far as I know, oil supply here is more or less hand-to-mouth. Funny sort of economics they teach there at Georgetown.
We are not as rich as the U.S. That has a Strategic Oil
Reserve Supply. We are a marginalized country. Filipinos
living near the Garbage Dumps. Surviving less than $1 a day.
Isang Kahig, Isang Tuka…that is how most of us live. Results
of the useless and parasitic politicians we employ to lead us.
So leave out the Strategic Oiul supply Reserve. We have to eat
first.
Hyden Toro,
True, that the U.S. is among the riches in the country, and the biggest consumer of oil consuption. Everyone in the world, or the nation for that matter will be effected by the oil tyrant industries. People need to educated themselves, that the U.N.(United Nation) are the elite controller/forces, of just about everything we do.
Here, where I reside in California. We too, are feeling the effects of gas prices. ["Historical Price Charts"] This only shows the price for the regular unleaded gas, but the supreme unleaded, which is not shown on the chart, did tip the price of $4.00 dollars a gallon.
Listen and view this short clips. Guess who gets the money in their pockets, if they do decide to build offshore drilling.
“Oil Executives Grilled During House Hearing”
So, it was macarroni and cheese for us, during the surge of the oil prices here in the United States.
Mario,
If they make the investment and take the risk to drill, they deserve the riches that come from the oil.
Free competitive markets are amazing. If the price of gas gets high, people curtail their wasteful ways, alternative energy becomes more affordable, and the ship rights in a way that is appropriate for a world of increasingly scarce resources.
This notion that prices can be controlled, as if oil were amply available, is nutso.
Companies that take risks and underwrite investments are simply being true to their owners. Ahahahahaha, me . . . only my oil company is Chinese . . .
Joe
In Denmark; you can study the country’s program for energy sufficiency. The Danes formulated a good government energy policies and programs.When they were hit by high cost of energy in the middle of 1970s.
I read in Philippine history. When the late Pres. Magsaysay was informed of The Law of Supply and Demand. He advocated for the REPEAL of the Law of Supply and Demand.
Having a PHD has nothing to do in assuring everyone that you have
good knowledge and good decisions. In times of layoff in the U.S. I found some PHDs driving taxis. So, dont flaunt your academic credentials. If you are not well informed and up to date in knowledge of the Oil Market. IN HUMILITY, YOUR EYES ARE OPENED AND CAN FIND WISDOM.
So whats wrong with driving taxis?
No educational benefits? No overtime-pay when you work on holidays?
Ummm, drunks, bad breath, gas and limited career upside. . .
Joe
Wow we have another wonderful gem from Ricky Carandang!
I wonder what market price equilibrium he is talking about?
Is he talking about the financial market price setting in the commodities and foreign exchange markets or the price setting in the physical trade of crude oil between sister companies belonging to the transnational integrated oil companies or the price setting by state owned oil companies combined with the refinery capacities in different parts of the world? Does Carandang have the complete information on future supplies in Saudi Arabia and the total amount of crude oil that Saudi Arabia sells in the spot markets in the M.E.?
It is sad that we have one dimensional commentators like Carandang who are clueless when it comes to the multidimensional aspect of determining the so called free market prices for crude oil and gasoline products. There is no singular dimension for the so called supply and demand curve for oil prices.
If for example there was a liberalized market here in the Philippines for rice that would mean that financial speculators could compete with each there in buying the future production of rice, would that affect the price of rice on a daily basis?
In a completely free market in financial products where commodities and agricultural grains can be turned into asset classes where is the actual market for real economy and where is the market for futures?
Will Shell Oil lose money? That is a loaded question since it is an integrated transnational. On the whole it does not. But that is beside the point.
“Oil’s tricky move”
“The biggest factor for the rising gasoline price is crude — and at first glance, crude’s gains look almost illogical.”
“The reason the price of oil has increased, and remained above $60 per barrel in spite of bearish supply and demand fundamentals, is twofold: dollar weakness … and a flood of speculative investment in crude oil and other commodities based upon optimistic sentiment in the short-term direction of the economy,” said Troy Green, national spokesman for motorist group AAA.:
“He estimates that there’s a $10 to $20 “optimism premium” included in crude’s price.”
“And if the economy is truly heading towards recovery, analysts will expect both diesel and gasoline demand to increase, said John Eichberger, a vice president of government relations for the National Association of Convenience Stores (NACS).”
“That appears to explain the recent movements in the futures markets, he said. “Traders are hoping to capitalize on the recovery by purchasing futures contracts now at lower prices and then selling them when demand kicks in later, making a nice profit.”
“On the downside, that “has more direct effects on consumers and the economy as a whole,” he said.”
Myra B. Saefong, Marketwatch
I do wish Pinoys would be more circumspect when the country has opened up its economy whole heartedly to the Gods of the financial markets and globalization. There are times when you could insist on managing your own domestic markets but we gave that up sometime back and GMA was herself one of the leaders in that move to open up the country.
It is the financial economy stupid…
whats ur point Jag? we’re talking gasoline retail, right?
J-ag,
I agree 100%. Carandang doesn’t understand what he’s saying. I wonder whose ideas those are though. I doubt that they are his.
Dean
what is he saying that is wrong?
GabbyD:
Carandang isn’t looking at the big picture.
So what’s wrong in having a PhD and driving taxis? I would like to see Dr Gloria Macapagal-Arroyo do that WHEN THE REVOLUTION IS VICTORIOUS! LOL!
blackshama,
Long time no read, welcome back.
Do you mean by your comment that you’re agreeing with cocoy’s: “…that this is a scorch earth strategy to make it difficult for the next president to do anything at all?”
That you think this will lead to a people’s revolt?
Someone should tell those dumb guys at ABS-CBN to stop using the the WTI index to bamboozle everyone into accepting so called market forces that shape the prices of gasoline.
ABS-CBN and Carandang are mostly irresponsible in spreading their own brand of misinformation.
“Global oil yardsticks shaken by Saudis”
Financial Times
03 November 2009
What is the oil price? For years, the answer has been provided by one of the two leading global benchmarks – Europe’s Brent and US-based West Texas Intermediate. As much as three quarters of the world’s physical oil is priced each day using them as yardsticks.
In fact they represent only a fraction of the hundreds of different crudes traded globally. Petroleum Intelligence Weekly’s International Crude Oil Market Handbook , a traders’ bible, lists almost 200 different crudes, from Kutubu of Papua New Guinea to Caño Limón of Colombia.
While WTI and Brent dominate, Saudi Arabia’s decision last week to drop WTI to price US-bound exports and replace it with the Argus Sour Crude Index (Asci), an index tracking the price of oil extracted in the US Gulf of Mexico, has shaken the supremacy of the traditional benchmarks, opening the door for new ones.
“[The Saudi move] is an indication that probably the industry is seeking other benchmarks,” says Philip Verleger, an energy economist at the University of Calgary. “It is suggesting the time may be coming to find a new measure for crude.”
who is talking about WTI? carandang? in his post? where?
It is GREED that shape the oil market forces. Not the economic
indicator indexes. A liquid fuel as abundant as water in oil
producing countries. If you limit production of it. You can drive up prices. It is as simple as that:Law of Supply and
Demand manipulated to drive up profits. Suck the blood of
everybody else in this Planet.
It’s all just bread and circus, really.
On the longer term, I hope all this brouhaha brings closure to the issue of alleged cartelization. Why can’t an honest-to-goodness investigation be conducted into this matter by the right agency (no congressional pa-pogi inquiries, please) is beyond me. Surely, the intention of the Oil Deregulation Law is not to allow Big Oil to engage in anti-competitive practices, if that indeed is what’s been happening.
Dear Apanfilo,
The UAAP (University of asia and Pacific) conducted a study on whether there was overpricing. According to their study, wala daw.
Its an old study though. Someday when the DOE Secretary has time, he might read it.
And then someday in the distant future…he might understand it.
Regards,
Dean
Freezing oil prices ought to be another ‘lapse in judgment’.
It is not as if the so-called giant three oil companies – Shell, Caltex, and Petron – are really raking enormouse profits.
For a fact, gas stations are folding tents which indicates that the ‘law of supply and demand’ has been manged with by no less than a supposed-to-be economist of note.
Tell it to the Marines, I guess.
Hi again Primer,
Just to substantiate your premise on oil co, profitabilities.
If you do the math on the financial statements of the oil companies you might see that their internal rates of returns are hradly what one can call profitable. Caltex or Chevron for one is only clearing about 9%. That is on the asssumption that the audited statements are true which I assume they are until someone can show that these officials reports supplied to the DOE and the SEC are false.
Regards,
dean
Hey Dean:
You can cook the Financial Statement Books. Like most
of those Corporations that put the U.S. economy in
near Depression. Most of the Chief Financial Officers
(CFO) of those companies are now in jail, or awaiting
trial.
You can see these big Oil business can buy anybody with their
billion of dollars of profits. They can buy the Media. They can
buy Politicians of every shade. They can hire people with high
sounding academic credentials to confuse you of their real intentions. That is to suck the Blood of everybody else.
You can see how evil they were. During the term of Pres. George Bush.
Prices going up and up. Their profits going up and up. Then, Bush
came to tell us:”we are addicted to oil”. Bush, their de facto PR man
had done a good job. Explaining and hiding their price goughing tendencies.
Dear Hyden,
Tama ka. I was assuming that they are correct, those being audited and at least one is a listed company. But then again, financial shenanigans are very real too.
Besides, the UAAP is run by La Sallites. : >
Dean
“It’s all just bread and circus, really.”
apanfilo,
Were you serious with that statement?
Gasoline is now being rationed in Metro Manila gasoline stations. I cannot go to Tarlac tomorrow for the interment of someone close to us because I can only purchase maximum of P100.00 gasoline for my car.
Is this policy of Pres. GMA an invitation to chaos as blackshama hinted?