Oil price hike: Supply and demand issue

Capped by a weeklong vacation or family reunions of urban dwellers in their provincial residences or preferred holiday destinations, it ended yesterday, Easter Sunday. Though extended by a day, this over-a-week vacation shall culminate today with a rush back home amidst throngs of faithful and vacationers who shall try to compete for every available public transport space just to get a night rest before plunging into the usual regular day routines.

However, while everyone was setting aside their normal hectic schedules and heaps of paper works to be with their families and loved ones, as is customary, traditional politicians used the one-week respite to visit churches to keep themselves visible among the religious (a.k.a. as voters). In fact, proper or not, pictures glossing the front pages of a local media, showed a known publicity-hungry politician in her sorties in some churches in the south, particularly, in a district where she badly lost (in the previous election). This scenario is repeated in many parts of the country last week. Obviously, these were perpetrated by traditional politicians who have remained dirty in the season that we, Christians, are supposed to stay clean.

Therefore, with wealthy candidates continuously pouring billions into their campaign coffers this early and supporters wildly spending bundles of bills in their sorties, we can expect inflation to cut in right now and until the last ballot is cast in the mid-term election next year. Expect, therefore, that all basic commodities shall wear new price tags, or aptly, higher price tags. Aggravated by the usual production shortage, prices of basic commodities, as essential as rice, shall surely soar. However, the government’s quick fix approaches like subsidizing imports of this “soon-to-rot” staple from the neighboring rice exporting countries might temporarily cushion the potential sharp increase. Needless to say, that is just temporary and will never solve permanently any wild-swinging pricing woes brought about by our deep-seated inadequacies.

Naively, if we only worry about the staple, then, we simply have ourselves to blame. The fact is, another grave inadequacy has been lurking not just before us now but even in our forefathers’ time. That’s the very basic need for oil. Except for a few drops from the Palawan oil rigs, we are practically importing every liter of it.

Today, this problem is not as pronounced as it should be. This is because we simply make oil prices as the main barometer for us to either be complacent or go panicking.   Probably, because prices are still bearable, then, we don’t dread.

Unfortunately, this seeming complacency will never last. All of us will soon fret on our pants when government’s price cushioning options will run out. All these imports (rice and oil) are still enjoying a stronger peso, therefore, prices are still bearable. While our currency’s strength isn’t artificial, it is brought about by the increasing remittances of our OFWs. Also, the compelling softness of the US dollar against other currencies has unnecessarily contributed to that temporary relief. Obviously, therefore, we are overflowing with dollars and at the same time are momentarily enjoying a very passive US dollar. However, that will soon change as recent economic indicators show that the US economy is set to rebound and, therefore, the dollar’s strength will soon be felt.

For one, the USA capped a three-month surge in employment by adding 227,000 jobs in February. Though it didn’t increase as much in March, the fact remains that their job market is active and is expanding. This encouraging development is well confirmed and complemented by the recent surge in car sales. As reported, auto sales in the USA rose about 13 percent in March “as consumers energized by an improving job market replaced aging vehicles and took advantage of cheap financing”. The same report added that “the strong March sales rounded out the best quarter for U.S. vehicle sales since 2008 and raised the prospect that major automakers would have to scramble to boost production and lift cautious full-year sales forecasts”.

This same news, however, while so positive under normal circumstances, may present serious concerns to some countries in the globe. While it is true that exports to the USA may soon pick up, the downside could pose a problem to countries, like the Philippines, that are largely dependent on oil imports. Obviously, as the US economy started rebounding, some factories have reopened and employment picked up. Thus, Americans have slowly started driving their cars for work. Consequently, their demands for oil are steadily increasing.

Obviously, therefore, as jobs and other US economic indicators turn brighter day by day, consumer spending will again shoot up. As more than two-thirds of the US economy is consumer spending driven, it shall consequently leap and the demand for oil will certainly increase. Logically, oil prices will again shoot up, and we, as an oil importing country will again be in the receiving end. Coupled with higher consumption in diesel fuel to power second hand generator sets (to cover energy supply deficit), the problems could be worst.

Consequently, demands for raises in pays from the labor sector shall mount and the economy shall again experience tremors flowing through its veins.   Therefore, few months or weeks from now, if not attended to, the country will usher in another distasteful sight that may be viewed before a nationwide audience.   As usual, on primetime, we could be witnesses of these thugs’ hooliganism and their penchant of destroying others’ legitimately built properties, more particularly, those owned by giant oil retailers. Condemning them no end and tagging them as the ruthless perpetrators of all our miseries. Apparently infiltrated by ideologues, jeepney operators’ and drivers organizations will certainly join the call. They will again stop plying their routes to the inconvenience of the general public.

Obviously, they will use their (ideologues) mastery of blowing peoples’ pent-up sentiment into wild and uncontrollable emotions. Though hollow to most of us, their misinformed flock will surely take their rhetoric as gospel truth. All these misguided statements and seemingly libelous invectives stemming from a singular root of perceived and felt miseries - the inevitable increase in oil prices. As usual, with the hope of gaining immense popularity, these left-leaning cause-oriented groups will try to make it a political issue.

Frustratingly, this has always been the vicious cycle. A problem exists, we go for temporary solutions. When the temporary solutions run out, rallies and demonstrations perpetrated by cause –oriented groups ensue. Then, defeated politicians take their turns lambasting the incumbents’ inefficiencies. Then, promises to do differently if given the opportunity to serve. Again, this oft-repeated rhetoric had been preached countless of times but has, so far, delivered no concrete results.

Honestly, nobody will wish for it (oil price hike), not even the country’s giant retailers since high prices will require more capital. Unfortunately, like an amputee’s ubiquitous cane, it will be a permanent fixture in our daily routine. It is simply unavoidable. While its truest impact isn’t fully felt with a seemingly stronger peso, it might slowly sap whatever is left in one’s pocket if our currency should slide beyond P47.00 to a US dollar.

Therefore, it is about time that our leaders shall emulate US President Obama. For one, it is noteworthy that in the US (the world’s biggest oil importing country), in preparing for the consequences of the demand surge, President Obama (despite his strong opposition of oil drilling in his 2008 campaign trail) has emphatically announced his plans to “reverse a decades-old U.S. ban on new drilling for oil and natural gas off some parts of the country's shores”.  The reversal would permit new drilling in the Atlantic Ocean off the southern United States, in the eastern Gulf of Mexico, and near part of Alaska.

Fortunately, just like in the USA, we can also cushion the impact because we also have our own oil deposits to explore. Sadly, however, unlike Pres. Obama, our leaders shiver in the thought that their decisions might be so unpopular. They tremble in the idea that they might loss their elective seats (a.k.a. livelihood) if they go against the will of the noisy, but not necessarily big, organized and sincere entities.

For comments and suggestions, please email to [email protected].