hard times (updated)

16 June 2008

my self-embargo (cvj’s term) re the ces drilon kidnapping is not so much because i approve of the way anc and inquirer initially managed the news blackout, rather because the information available even now is so thin and confused, and anc’s not talking, what a twist, so that to say anything would be only to speculate based on unconfirmed reports. so saka na lang.

meanwhile, life goes on and it’s a bitch.

yesterday i was in mall supermarket’s checkout counter, waiting to pay for some 2,000 bucks worth of groceries, when i saw that next in line was a young woman in office uniform buying just one tiny can of sardines. my heart sank. and yet and yet she was okay. while the cashier took off to check the price of a bottle of pickles that had no price tag, our eyes met and we exchanged smiles and she even explained that the cashier also needed a code thingie that came with the price tag.

later i wondered how much longer she could keep it up, being nice. how much longer before she can’t pretend anymore na okay lang.

not much longer i think. with the price of oil surging worldwide, so will the price of gasoline and diesel and lpg continue to rise to heights that will further impoverish the lower classes and bring the middle classes to the brink of poverty.

and yet we here in the philippines seem to be in denial. aside from gma’s subsidies and salceda’s noah’s ark ek-ek for the poorest of the poor, we seem to think, to pray? that this is temporary, that prices will go back down to normal, that is, affordable levels, eventually. not so.

writes carmen pedrosa of philippine star:

We should not be lulled that if we just economize here and there, save on gas, count the centavos in our grocery bills, close our air-cons etc. we should be ok when the storm passes. That is a dangerous presumption. Happily there are more serious individuals warning us how unprepared we are for the “time of trouble.”

These individuals, some of whom were branded crackpots in the past warn against a dangerous cataclysm that we cannot dismiss with the wave of the hand and that “business as usual” will return. They believe that unless coordinated and widespread worldwide action led by governments, perhaps under the wing of the United Nations, are in place soon, we are nowhere near being prepared.

This school of thought is based on projections made by oil expert and geologist Colin Campbell and a few others. Their predictions three years ago were so dead-right they are now being taken more seriously in mainstream media. Their conclusion is that the world has reached its oil peak. Campbell is not saying that the oil has run out. What he is saying is that the oil peak has been reached and is on a downward spiral. What has exacerbated the peak oil is that it is being outpaced by world demand from the older superpowers and the new economic giants playing catch up, like China and India.

* * *

In a recent article, Times Asia correspondent Leo Lewis reported on a G8 conference of energy ministers in Japan and he said they are now singing a different tune. Indeed, the participants generally agreed that “the record surges in crude prices have propelled the world into an era in which oil may never be cheap again and energy security will become the foremost concern of governments everywhere.”

They may have expressed concern about prices but more significantly they admitted that “the old rules of energy markets must be torn up if the world was to avoid a crisis.”

The energy ministers were from the Group of Eight (G8) industrialized nations China, India and South Korea. Their countries represent 65 percent of global energy demand. They described the tone of this year’s meeting as “fundamentally different” from previous occasions. It is now admitted that global oil production – at about 87 million barrels a day – is sputtering. The real question is: why?

“Is it, as advocates of the “peak oil theory” claim, because there is simply not enough oil left in the ground? Or is it because of other reasons, such as a lack of investment in new fields and production?”

“It is a fact that some of the world’s biggest oil areas are being depleted rapidly. There are plenty of examples. The world’s largest oilfield at Ghawar in Saudi Arabia, which produces more than five million barrels a day, more than 6 percent of global production, is thought to be in decline. But other areas, such as the Santos Basin off Brazil, are just opening up. But Petrobras, the Brazilian state oil company, faces technological problems in exploiting its latest oil and gas discovery,” Lewis reports.

Here are some of the energy ministers’ comments:

“If we leave this situation as it is, it could lead to a recession of the world economy,” Akira Amari, the Japanese Energy Minister and host of the meeting, said. That meant, he added, that energy security, including the stability of the oil market, had become one of the top priorities for every country.

Andris Piebalgs, the European Energy Commissioner, said that the high oil price was not a passing phase, adding that “no economy should gamble on a potential return to low prices”.

Sam Bodman, the US Energy Secretary, described the recent price spike when a barrel of benchmark US light crude rose $10, as a shock said “that similar price volatility lay ahead.”

He conceded that there were relatively few things that could be done in the short term. There was also disagreement on how to protect consumers from high oil prices. The United States led calls for developing world subsidies to be removed to help curb demand. There were riots in India last week when price increases were passed on to consumers.

John Hutton, the Business and Enterprise Secretary, told The Times that the oil market was no longer “responding to price signals”. Strangely the conference while agreeing on the dangers the world faced stopped short of any firm policy statements on the role of speculators in energy markets.”

ah yes, oil speculation, which is said to be playing a non-trivial role (in addition to demand/supply issues, and the weak dollar) in the high price of oil.  the latest is, the malaysian prime minister is urging western governments to rein in speculation on basic commodities.  says mike the actuary:

I’ll admit, there is something appealing to the notion of restricting participation in the oil futures markets to those who can actually take delivery of the product.

Unfortunately, there are two big problems with that desire.

First, we have a little matter of the market being international. Getting all the global commodities exchanges to cooperate is likely to be almost as challenging as herding cats.

Second…well, I’ll just point to an article in Friday’s Wall Street Journal:

While Nymex operates as a U.S.-regulated market, ICE Europe operates as a foreign exchange with trading terminals in the U.S. and is exempt from U.S. rules on reporting and speculation limits.

One person close to the matter was unsure if an actual agreement on setting levels had been set. Another said that even if the FSA and ICE Europe had agreed to the setting of limits on the front-month contracts, the FSA still isn’t sure who is doing the trading.

It’s kind of hard to regulate the speculators if you don’t know who they are, don’tcha think?”

heto naman ang fearless forecast of mass poverty ni tony lopez ng manila times:

WITH oil prices hitting new highs almost every week, expect local gasoline prices to adjust upward almost every week too.

Steep gasoline prices, however, seem like small pain compared to the harm record high crude prices will do to many Filipinos. Millions will be impoverished. Those who are barely middle class will fall to the edge of poverty.

In the interim, there will be long lines of people wanting to buy cheap rice. Malnutrition will worsen, as will mass hunger. Dropping out of school will be fashionable. The result is social unrest never seen in the last 30 years. Food riots could erupt in some urban places in the country where so-called informal settlers are dominant. Boycotts over high-priced bus and jeepney fares can be expected. . . .

The most severe rice shortage in 30 years will cause malnutrition, hunger and mass poverty. The highest crude oil prices ever will finish off what the rice shortage doesn’t, meaning bring even greater number of Filipinos to the brink of poverty.

And many once rich families will feel very poor. They may have to give up some of their so-called luxuries-like driving the kids to school or driving oneself to office.

Together, the food crisis and the energy crisis will create hardships and privation never seen in a generation. One form of hardship is inflation which surged to 9.6 percent in May from 8.3 percent in April this year. . . .”

even alex magno who loves gma admits that the situation is explosive and subsidies can’t be forever.

Modern governments are expected to protect citizens from inflationary surges and other quirks in the market. When they begin to appear to be unable to do so, the social contract is eroded and legitimacy is undermined. . .

What should governments do in the face of increasingly explosive social situation following round after round of price surges?

Not much, in the last analysis. Governments cannot attempt to subsidize oil prices. That is a bottomless pit that will drain scarce public resources from other public services. . . .

At best, governments can help conserve the social contract by token but highly visible acts.
We see that in the response of our own government to the worsening price crisis. First, we began by taking out levies on imported oil. But while that hurt government revenues, its effect on arresting price rises was at best impalpable.

There are populist politicians agitating that government withdraw value-added taxation on oil products. That will only worsen the fiscal situation and create more problems down the road. It will force us to borrow to finance public operations and bury us in debt down the road.

In the face of incessant price increases and an inflationary surge, government has finally decided to postpone the goal of a balanced budget originally targeted for this year. Instead, government has evolved a program of direct subsidies to the poor to help mitigate the adverse impact of inflation on their lives.

Recently, government began handing out conditional subsidies to encourage poor parents to keep their children in schools. Then the DSWD began handing out coupons to indigent families to help them acquire cheap rice. Last week, government began handing out P500 to lifeline electricity consumers.

The money is handed out directly, with the consumers lining up for them. It might seem to be a tedious and inefficient way of doing it. It would be far easier to credit the amount to the billings of poor consumers, with the money paid directly to Meralco to cover the subsidies. But that would deny government the important by-product of reinforcing its legitimacy and reassuring the public government stand by its part in the social contract.

Presidential economic adviser Joey Salceda suggested a package of spending measures that would ensure adequate food stocks. Included in that “Noah’s Ark” package is a large amount of subsidies to help the poor cope with the price surges.

We cannot go on and on providing subsidies at every instance. But neither can we court a social explosion by not giving out such subsidies in a moment of great social difficulty.”

on cnn a couple of weeks ago, I caught an economist saying that the only time the price of oil might go down to reasonable levels is when the demand for it goes down, which means, less gasoline consumption all around. as the price continues to surge, this is exactly what we might see, less consumption for the poor and middle-class, but i’m not sure that rich countries like the u.s. and china would oblige.

Posted in hard times

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