Tuesday, 13 March 2012

How to beat the high cost of oil


JOHN MANGUN
OUTSIDE THE BOX
Business Mirror
http://www.businessmirror.com.ph/home/opinion/24440-how-to-beat-the-high-cost-of-oil 

THE concern about rising oil prices is justified. Prices for gasoline are high. Prices for LPG are high. Prices for diesel are high.

Global LPG (Liquefied Petroleum Gas) prices are at historic highs. From geelongadvertiser.com.au in Australia: “The increase in the price of LP gas is a spike in the Saudi price for LPG, which is driven by major increases in demand.”

The www.aaj.tv in Pakistan writes, “Saudi Aramco Contract Price for LPG has surged to a record high.” South Korea is experiencing the same problem. The Chosunilbo newspaper says, “Drivers should brace for higher prices at the pump as international price of LPG hit a new record high.”

Welcome to the reality of the global energy situation.

But world LPG prices are about the same as one year ago when prices reached an historic high. In the Philippines though, LPG prices are up about 13 percent from March 2011.

However, here is the interesting situation about local gasoline prices and world crude oil prices.

In March 2011, the price of Brent crude oil was $112 per barrel. Now that same oil is selling for $129, an increase of 15 percent. In March 2011, according to the survey of the Philippine Department of Energy, unleaded gas in Metro Manila averaged P55 per liter. That same liter is P58 for an increase of 56 percent. Therefore, the price of unleaded in Metro Manila has not gone up as much as the global price of crude oil. Part of that is because the peso has appreciated 0.9 percent from March 2011 from 43.4 to 43 per US dollar.

If local gasoline had gone up as much as crude oil, the price should be over P60.

Nonetheless, we all know how increases in the price of fuel affects all Filipinos and more adversely on the lower economic groups.

The offered answer to high oil prices is to suspend the value-added tax on oil products. But this amounts to about P600 per Filipino. And if oil prices continue to go up, the only solution is for the Philippines to have its own domestic oil production.

There is a saying, “To gain something, you have to lose something.” In other words, trade-offs.

If we are going to produce Filipino crude oil, we need the money and expertise of foreign companies. That’s the way it is.

The government is going to have to walk a thin line between generating revenues from this business activity and allowing enough financial room for oil companies to make as much profit here as in other countries. Other laws must be comparable with other oil-producing nations also.

Some oil will come from the seas and accidents and mistakes will happen. Birds and fish may be endangered and there might be some environmental damage no matter how responsibly every one, the private sector and the government conduct this business.

Filipino oil may be found in the middle of Manila Bay and those oil rigs are not sightseeing attractions. But we need the cheaper oil.

Refineries will need to be built and they are big, noisy, ugly, can be dangerous, and smell terrible. But without them, if crude oil reaches historic high prices, more Filipinos will not be able to feed their families due to inflation.

Oil may be found in the rice fields of Nueva Ecija. But the total economic value of those lands is greater producing oil than rice. The oil will reduce the P600 billion annual import bill for foreign oil, leaving more money for social projects.

In the far-flung areas, the government must follow the Constitution and existing laws to allow indigenous people a voice and a share of the oil-production bounty.

However, the government owes it to the Filipino, especially the poorer Filipinos to embrace and advance this economic activity. There will be trade-offs but how could anyone disagree that the Philippines and the Filipino needs its oil wealth?

Except, there is no significant oil in the country.

But as the fifth most mineralized country in the world, there are huge amounts of copper, gold and nickel, and with this, the government could subsidize every liter of oil we buy.

On a personal note, because of numerous requests, I have decided to reduce the length of my Stock Trading Seminar to a half day rather than a full day. The date will be March 24th.

The content will focus on Stock Picking, Trading Techniques, and basic Technical Analysis to identify Trends and Price Points. With these changes, the fee for the seminar is reduced and will still include snack, lunch, materials, and your questions, lots of them.

Because of these changes, I will need your confirmed reservation no later than Thursday, March 15, 2012. Please e-mail john@mangunonmarkets.com with your reservation.




E-mail to mangun@gmail.com and Twitter @mangunonmarkets. PSE stock-market information and technical analysis tools provided by CitisecOnline.com Inc.

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