This is a view of the shock of high oil prices from the Philippines, Manila Times.
Because the Philippines is dependent on imported oil it is particularly hard hit when oil prices rise.
By Tony Lopez
The third oil shock
The world is headed to its third energy shock in 30 years. This is symbolized by oil prices reaching the threshold $100 per barrel which will happen in the next few weeks.
On Sunday, Nov. 11, the Oil-Price.Net quoted crude at $96.20 per barrel, down slightly from the peak of $98.62. A month ago, it was a little above $80. On Aug. 25, 2006, oil prices hit what was then a record $68 a barrel. From one record price to another in a little over a year, oil prices have increased 44 percent. Oil price has more than quadrupled since 2001.
The forecast is that within a year, oil will reach $125.06 per barrel.
To be sure, oil has yet to reach its historic inflation-adjusted high of $101.70, reached April 1980 in the aftermath of the Iranian Revolution. Also, oil is still cheaper than your bottled water and, for that matter, your cup of Starbucks coffee, which is atrociously priced at P110 and yet cannot run your car or your gas stove.
This oil shock will hurt poor countries badly and the poorest Filipinos the most.
This early, industrialist Raul Concepcion is suggesting rationing of food—to enable the poor to cope, and more transparency in the way domestic oil price increases is approved, to enable the rich and the middle class to cope. There is no sense or science to the way local oil prices are adjusted. Even if an oil company wants to reduce its prices, it has to get government approval. Why? Blame the Oil Deregulation Law.
The two previous oil shocks were driven by supply interruptions from the Middle East. This third shock is driven by demand for oil by huge energy users like China, India, the United States and the Middle East. Oil demand next year is projected at 88 million barrels, up 2.4 percent from 2007.
On the supply side, being blamed are refinery bottlenecks in the US, a weak dollar (which is down eight percent against the euro), geopolitical threats in the Middle East, the war in Iraq, violence in oil producer Nigeria, and attempts by Venezuela and Russia to increasingly control their oil resource, driving away foreign oil investment.
The International Energy Agency predicts that the world’s energy needs will rise more than 50 percent in 2030 over today. China and India together will account for 45 percent of this increase. Net oil imports of China and India combined will rise from 5.4 million barrels per day in 2005 to 19.1 mbpd in 2030—more than the combined imports of the US and Japan today.
The US is the biggest oil consumer. Second is China which is shifting away from bicycles and mass transit towards automobiles. By 2010, China will have 90 times more cars than it had in 1990. Automobile sales are rising at 19 percent per year. By 2030, China oil imports will equal that of the US.
The IEA warns that although new oil fields will increase production over the next five years “it is very uncertain whether it will be sufficient to compensate for the decline in output of existing fields and meet the projected increase in demand.” A supply crunch in 2015, involving an abrupt escalation in oil prices “cannot be ruled out.”
In China and India in the past ten years, 300 million Chinese and 100 million Indians crossed the poverty line to middle class. China has been growing 10 percent per year for ten years. Combined oil demand by China and India will double in 20 years.
China’s biggest oil producer last week became the world’s most valuable company. Its IPO made it a $1 trillion company. China has acquired interest in oil exploration and production in Russia, Kazakhstan, Venezuela, Sudan, West Africa, Iran, Saudi Arabia and Canada. China gets 58 percent of its oil imports from the Middle East.
The New York Times says, “at the root of the stunning rise in the price of oil, up 56 percent this year and 365 percent in a decade, is a positive development: an unprecedented boom in the world economy.”
In China, demand for oil has been so huge shortages, rationing and long lines became a daily occurrence. The government had to increase domestic pump prices by 10 percent last Oct. 31.
Japan shows the way to wean away from heavy reliance on oil. Though it imports almost all of its oil needs, it now imports 16 percent less oil than it did in 1973, estimates The Washington Post. But it more than doubled the size of its economy. Japan now accounts for nearly half of total world solar power generation. The US share is just 15 percent. The adoption rate for the less energy-consuming fluorescent light bulbs is 80 percent. The US is six percent.
Brazil is another country that shows the way to adapting to the oil crisis. About 80 percent of its gasoline is ethanol-based. The shift to sugar-based ethanol transport fuel made Brazil a net oil exporter for the first time.