Saturday, March 7, 2009 10:13

Oil lurks menacingly in the background

In Guest Writers, Main Stories, Top Story • 737 views • 13 Comments

Ng Weng Hoong

Oil has almost disappeared from the list of things we need to worry about for now. 

Since late last year, demand destruction and supply reduction have been racing to set the direction and pace for the oil markets.

For now, demand destruction is winning, pushing WTI crude prices down to around $40 per barrel. As jobs disappear, consumers are grateful they can at least enjoy the fruits of low energy costs.

For more than nine months last year, WTI held above US$100, peaking at more than $147 in July before it began a quick slide to current levels.

For the first time in more than two decades, world oil demand growth will be negative for two consecutive years, said the wisemen at the IEA, OPEC and the US EIA. The world’s economy will be in its worst shape since World War Two, and could be headed for the worst of the Depression era of the early 1930s. Some 51 million jobs will be lost this year, adding to the deflationary spiral already at work, said the International Labour Organisation.

But oil lurks menacingly in the background.

Longer term, an oil supply shock and the prospects of a return to $100-oil await. In response to the lack of demand and credit, oil companies are sharply reducing capital expenditure that will throttle back supplies for many years to come. When economies rebound, the supply may just not be there to meet demand. A repeat of last year’s sharp run-up in prices could well follow.

Another huge unknown is the impact on the markets from the record amount of money that governments around the world are pumping into the system. The combined size of stimulus budgets now run into trillions of dollars over a few short years, far greater than anything seen in the past, including during wars.

Everyone thinks deflation is the enemy. So, why has gold been surging over the past year? The bellweather of inflation is returning, and giving out a quiet ominous sound.

Money supply is fast building up like raging water behind a broken dam. Instead of flowing through, it is being held up by financial institutions and banks which are more focused on repairing their balance sheets. Paralysed by fear, the banks do nothing when they should be lending out to businesses and consumers as intended by governments. 

When, not if, the torrent of money starts gushing out, the inflationary impact will be massive. Oil at $200 a barrel, when it’s available, would be cheap.

Weng Hoong is the editor at  www.EnergyAsia.com

Read also: Q2 power tariffs lowest since 2005 (Today)

 

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This article was written on 23 February.

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  5. The CASE for taking consumers for granted?



13 Comments

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David
Mar 7, 2009 11:38

I hope foreigners will start dissappearing, and Singaporean can return to its conducive living environment again. Taking MRT will become a breeze, less traffic congestion, cleaner environment, lesser crimes. A place we finally get to enjoy living and where Singaporeans truly call home again. Such destressful environment will encourage local couples to pro-create and our NS men finds a sense of belonging here. The above was never realised when our country were swarmed with foreigners, creating all sort of “side effects” for Singaporeans in this country. We hope to learn something interesting from this crisis and wake up to all our past stupid policies.

Donaldson Tan
Mar 7, 2009 12:59

IEA warned last year about the impending oil price shock when global demand is restored and appealed to governments and the private sector to not reduce investment on expanding the oil and gas infrastructure..

wkc
Mar 8, 2009 8:36

[#1 David]

The world we live in has become very complex, David.

Singapore may not be able to return to the kind of conducive living environment as described by you.

[a] Singapore at stage 1 with few or no foreigners
[b] Singapore at stage 2 with plenty of foreigners [some of whom have since become Sinaporeans or permanent residents]
[b] Singapore at stage 3 without foreigners [which foreigners are you referring to?]

Can stage 3 be a workable environment, with the economy humming along in the way you envisioned?

To be sure, being idealistic is not the same as being pragmatic.

law
Mar 8, 2009 17:34

Dear wkc,

Please do not link the economy with the foreigners issue that David brought up. this is what the government is arguing (henceforth i think you have been deeply brainwashed by the PAP) from but this is not what many of us are arguing about. Our wish for a good decent life is about reducing the population of singapore and in our present situation, this is about reducing the foreigners. Furthermore, they do not integrate well in the short time and we also fear that they do not understand how we became a nation and the racial problems that we faced in the early days of nationhood. In the long term, the ‘more foreigners’ issue could be a backlash for our nationhood.

wkc
Mar 8, 2009 22:33

[#4 law]

law, you appear to have overlooked that Singapore has depended largely on foreign workers and the contributions of foreign workers, in many areas of our economy, have helped to bring our economy to what it is today. One major contribution from foreign workers has been, and still is, in the construction industry; their efforts have immensely made the construcion of our MRT lines, trains and stations and other infrastructures a reality. And what about domestic maids? Aren’t they considered as foreign workers? Why do you think tthere are so many thousands [over a hundred thousand] of domestic maids in Singapore?

There is no way you can decouple the linkage between our economy and the foreign workers stationed here. Some foreign workers been granted citizenship status and therefore for this particular group they are now Singaporeans and not foreign workers. Do you agree? And do you know that it has been reported – this was in the past, before the downturn in the economy – that some Singaporeans were found unwilling to be engaged in certain jobs?

David [#1] says: “I hope foreigners will start disappearing and Singaporeans can return to its condicive living environment”…

My questions to David: [1] Can Singapore do without foreigners? and [2] Which foreigners are you referring to? are completely legit in the brief argument I was trying to present.

I am amazed with your comments, especially this part:
“Please do not link the economy with the foreigners issue that David brought up. this is what the government is arguing (henceforth i think you have been deeply brainwashed by the PAP) from but this is not what many of us are arguing about.”

And you think that my post #3 is a result of my having been deeply brainwashed by the PAP?

Are you serious? It is simply mind-boggling!

CC
Mar 9, 2009 8:37

to wkc, you can decouple foreign labour to to the economy to some extent if we can restructure the economy.

check out lucky tan’s website for more details: http://www.singaporemind.blogspot.com

ckw
Mar 9, 2009 8:55

wkc,

I agree with you that we need foreign workers in certain industries like construction and shipbuilding. There simply aren’t enough Singaporeans that have those skills or are simply not willing to look for employment in those sectors. I think the point of contention is having foreign workers in our retail sector, IT sector etc and other sectors where Singaporeans can and are willing to work in.

randomnessinmind
Mar 9, 2009 11:00

can you two stop talking about foreign workers or not? It’s not like it has anything to do with the Oil. Just Ignore David, it’s his own opinion, nothing to get worked up over.

They will play with oil prices
Mar 9, 2009 11:15

as they have done all the past years.

The Oil Kingdoms and the Oil Companies are ever ready to prey on the end users. When prices dropped they reduced productions to prop the prices, when world economy is good and consumption increases they raise the prices.

Unless other viable alternative fuel sources are found, these oil traders will fleece the consumer no end. As owners of oil they are always in a position to manipulate the price of oil, who can deny them ?

Oil Owners are perpetually menacing in good times or in bad because these people are bad.

everything is interrelated lah
Mar 9, 2009 11:19

“can you two stop talking about foreign workers or not? It’s not like it has anything to do with the Oil. ”

Everything is interrelated lah. It depends on how you want to build a case on it lah. That is where scholars come in lah.

More people = more commuting = more excuse to impose charges on road use or anything to do with commuting = charges imposed either on car (COE), road use (ERP) and oil (tariff).

wkc
Mar 9, 2009 12:02

[#7]

ckw, good points.

Yes, priority should be accorded to Singaporeans for jobs where they can fit in and have applied for. I would assume that such is, GENERALLY, the norm for our govt and “SINGAPOREAN” companies. But there may be exceptions of course, for example, the new CEO appointed for Temasek and the CEO of DBS Bank. Some people may not agree and think we have local talents to fill such places. We cannot rule out the issue of subjectivism, where the human mind is at play.

wkc
Mar 9, 2009 12:18

cc [#6]

“to wkc, you can decouple foreign labour to to the economy to some extent if we can restructure the economy.”

To some extent, the answer is Yes, possible. We can only do without foreign workers if there are enough locals for every industry. Right now we do not have enough manpower resources or the capability to make it an all-Singaporean affair. Anyway, it can be interpreted as nothing more than national sentiments. Moreover all talented or people with special skills have a role to play for the betterment of our economy – whether they are foreign nationals or Singaporeans.

Yeah, you are right wkc but we can do better
Mar 9, 2009 14:27

“Right now we do not have enough manpower resources or the capability to make it an all-Singaporean affair.”

To compete for some outside pie or to compete for inside pie. For inside pie, better keep it local as both cost & profit (a matter of degree on how much it is being skewed or shared between employees & employers) likely to stay local unless for import or foreign travelling, etc.

If manual labour is priced low, it will always stay low (no minimum wage) as cheap labour (if encouraged bcos of policies) from third world can always do it. If manual labour is priced decently, it forces a more balanced redistribution of income in fair favour to manual labour and hence build sustained competence (quality) in this area (e.g australia, europe, etc) which will not be lost to other countries.

Yeah, for outside pie, you may need outside talent to capture value which your own local can’t do it (perhaps because of culture / language) so it is still a net gain to the country.

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