$100 per barrel era

Everybody’s talking once again about high gas prices. So far, service stations’ pump signboards have shown as much as P5 per liter increase since the start of the year, and Filipino consumers are animatedly talking about how this is hurting their spending.

During the last month, the unrest sweeping the Middle East and North Africa had spread jitters across nations that are heavily dependent on imported oil. The Philippines is one of them, and this has prompted the Department of Energy to reissue a minimum inventory level on products.

This did not really get much attention among Filipinos since a supply crisis does not seem imminent at the moment, as attested by experts in global oil supply and demand scenarios.

Market fundamentals

Even if crude oil is higher by about 20 percent from end 2010, members of the Oil Petroleum Exporting Countries are pumping out more oil, perhaps to make up for lost revenues as a result of the global downturn that came with the financial crisis of 2008. This in turn has resulted in higher crude stocks.

Secondly, there are no refinery production shortages being experienced, or even foreseeable in the near future. This was not the case three years ago when a number of refineries had shut down due to natural calamities and technical problems.

The word “spike” best describes the recent rise in oil prices. But of course, we don’t really know how high or how long this price spike will last. It really depends on how quick the besieged regimes of those Middle East and North African governments will resolve matters.

Global economic recovery

Another reason not to feel panicky over the rising crude and oil product prices is the continued lethargy being experienced by developed economies. Plus the fact that dominant economies of the world are keeping their interest rates at almost zero levels.

With the threat of inflation, or stagflation, or stagnation quite removed, this spike in oil prices will not significantly affect the recovery of the global economy. If crude prices hold for $140 per barrel for a prolonged period, say six months, then that would be a problem.

At the moment though, Brent crude – which is a major component in world crude pricing – is about $115 per barrel. Observers maintain that this is purely a result of speculation, primarily fueled by the political tension in the Middle East and North Africa, and nothing more solid.

Local inflation uptick

While the above may convince you and me that there is nothing much to worry about, current higher pump prices coupled with recent increases in transport fares and toll rates still hurt.

The Consumer Price Index has shown that fuel, light and water costs in February are up 9.9 percent from a year ago, significantly contributing to the 4.3 percent inflation rate for last month released by the Bangko Sentral ng Pilipinas recently. And that hasn’t considered yet the recent crude price hikes.

Going to the core CPI though, the figure is about within manageable levels. This means that while food prices can be affected by higher freight and transport costs, it will not be a major reason for households to slash food spending.

Those with cars and big houses, however, will feel the pinch of paying about 20 percent more for a full tank of gasoline or about 15 percent for their electricity bill. But even if crude prices are temporarily on the high side, one thing is for sure: The era of the $100 per barrel crude is upon us.

Lifestyle change

For those belonging to the middle to upper bracket of the economy, now is the time to seriously start considering cutting back on frills spending. The first to go could be dining out or entertaining family and friends. This is one part of the budget that would be the easiest to adjust, especially if income is not increasing.

If you haven’t bought, or are due for, that new car, consider buying one of the latest sedan models instead of an SUV. Or the hatchback-slash-station wagon could be an acceptable compromise if you still have a big family that needs to be packed into the car for weekend excursions.

Or you could get a second car, one of those wee versions that can go for much longer distances on just a liter. Once you’re resigned to not having those automatically adjustable side mirrors from the inside of the car or having a motor that has less pulling power, these small cars can be quite endearing. Less problem, too, in looking for parking space.

Speaking of vacations, even with fierce competition among airline companies, budget air fares are no longer cheap, largely because jet fuel costs are higher. It could be time to reconsider scaling down the frequency of your out-of-the-country trips.

If it’s any consolation, the implications of a $100 per barrel crude may be painful, but we all are sure to survive this, especially if we don’t have a choice.

Future of oil

Finally, the most fundamental question that needs to be answered is: What can we really expect of crude oil now that it will not likely go significantly below the $100 per barrel level? Are we living in a world where hydrocarbon fuel, which has propelled the world to modernity during the last two centuries, will soon run out?

The first two key phrases in the world of fossil oil are “new developments” and “technology advances.” As long as new fields or oil finds are developed, that dreaded day when oil runs out is still far away, at least not within in our lifetime.

On the other hand, technology in oil search, extraction, and even refining has advanced tremendously over that last decade that more oil from existing wells is being “discovered,” certainly more than enough to cover for the rise in demand.

The last key word is “pricing.” This economic term has been a powerful leverage in the global interplay of supply and demand. High crude prices will provide the impetus to seek alternative fuels or sources of energy. It will also push the development of technology that will promote more efficient use of fuel oil.

For sure, there will come a day when oil will stabilize at $200 a barrel. But perhaps, it will be because your car will run on a 100 kilometers to a liter of gasoline. –Rey Gamboa (The Philippine Star)

Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at oo.com” reydgamboa@yahoo.com. For a compilation of previous articles, visit www.BizlinksPhilippines.net.