Oil price drop: Nothing to rejoice

Not long ago, oil prices almost breached US$150.00 per barrel. Well aware that the price in August of last year was less than US$70.00 per barrel made us all shiver. In simple math it means that in less than a year, oil prices more than doubled.   With such seemingly irreversible trend, oil prices reaching the US$200.00 per barrel was then viewed as unquestionable. The question was - when?

Contrary, however, to most expectations, oil prices have recently dropped sharply to US$80.00. To the oil producing countries dismay, it isn’t considered yet hitting the floor. Therefore, it can still go further down. 

Oil producing countries have different preferential prices. Likewise, pundits have varied expectations as far as how much oil must be priced. Deutsche Bank, for one, calculated how high oil prices have to be for OPEC countries to maintain their budgets. Iran and Venezuela, two of the most vocal and seemingly arrogant countries who are often the first to call for production cuts, need the highest price per barrel of US$95. Russia needs about US$70, while Saudi Arabia, OPEC's largest producer and de facto ruler, needs about US$55 a barrel. But taking all these measures together, the bank says US$60 a barrel seems like a probable place for oil prices to bottom out. 

Obviously, while this development is bad news for Russia, this is certainly worst for Iran and Venezuela. On hindsight, however, it is a happier scenario for the rest of the world as it shall temper Iran’s and Venezuela’s arrogance. 

Looking back domestically, the past twelve (12) months were just as harrowing as anyone can imagine. Coupled with the lingering food shortages, Filipinos were so jittery. Their livelihood severely affected, the public transport sector held numerous rallies and strikes to dramatize their demand for a rollback in oil prices and increase in fares. As usual, with the hope of gaining immense popularity, left-leaning cause oriented groups joined them and tried to make it a political issue. They even demanded for the president’s resignation.

There is no better time to emphasize this recurring scenario but now. That oil prices are no political issues and therefore, rallies and demonstrations could never solve it. The fact was, even in his greatness, US President George Bush wasn’t able to influence it politically. In his visit to the Middle East earlier this year, he tried but failed to convince the Saudi king to increase output in order to lower prices. The reality is, that oil prices are a consequence of the interplay between supply and demand.

The world’s biggest consumer is the USA. They consume more than 20 million barrels a day or more than ¼ of the world’s output. Therefore, demand for oil is largely influenced by USA’s industrial and personal consumers’ behavior. 

Today, the USA is in dire economic crunch. Their ongoing economic turmoil traverses all over the globe. Manufacturing and financial companies are closing down. Foreclosures of mortgages remained unabated. Consequently, economic activities like manufacturing have largely slowed down. As these manufacturing outfits used to consume sizable quantities of oil, its demand therefore has substantially dropped.

On the other hand, as 88% of the US workforce travels by car, a sizeable chunk of the country’s consumption is eaten by this sector. As more of them are losing jobs and are opting to use public transport instead, their oil purchases have considerably dropped as well. 

Yes, the oil price drop is worth embracing. However, the reason by which it has dropped is very alarming. The USA’s economic slowdown, which is the main reason for its drop, is not a welcome development not just for us but for the rest of the world too. It simply means that Americans will control spending in all fronts. Therefore, the demand for all items that the USA used to buy will either decrease by 50% for essential items or worst, by a 100% for non-essential items like fashion jewelries.

How will this affect us? The answer is too simple. It simply means that the Philippines’ list of buying countries will be a bit shorter. Consequently, our country’s exporting firms will be badly affected too.

Added to this looming scenario is the stubbornness and indifferences of some sectors in this country. First, with prices now hitting August of last year’s US$70.00 per barrel, the country’s giant retailers have never brought their prices down to reasonable level. Though we don’t expect prices to be exactly the same as before, at least, it should have approximated it. 

Indeed, while oil’s retail prices are not as low as the pre-oil crisis period, it can’t be denied that these are way below than what we used to have three (3) months ago. Yet, jeepney drivers and operators have remained adamant in reducing fares. This is the sector that is so quick and harsh when demanding for fare hikes but so hard on reducing it.

To recall, about four (4) months ago, we were on the receiving end of these utility operators’ and drivers’ shenanigans. Obviously infiltrated with ideologues, these bunch of bullies were harassing sensible drivers who continued to ply their routes. Feeling ignored, these thugs resorted to throwing metal spikes in the middle of the road to incapacitate the non-striking drivers’ units.

Consequently, classes were suspended. Some workers arrived late and others went on leave. As the day ended, long queues in several intersections were ordinary sights. Carbon and other satellite markets’ crowds were relatively scarce as most diehard patrons were immobilized.

Sadists that they are, these ruffians rejoiced in all those inconveniences we were in. They were trumpeting here and there about how successful the transport strike was. They rejoiced without realizing that in doing so, they successfully pulled the schoolchildren a day back to illiteracy and further impoverished the families of ordinary employees who were not able to earn for a day.

Such strike, like many others before that, did not only bring us inconceivable discomforts. It also dealt us immeasurable losses brought about by economic inactivity.

Frankly, therefore, with all these insensibilities, global reduction in oil prices is not something worth rejoicing at all.

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