Friday, October 24, 2008

The Ugly Extortionists

Hantu Laut

Got back my Streamyx yesterday after one week of screaming obscenities at TmNet's talking machines.They have gone completely futuristic, you talk to a machine that talk endlessly about the company but can't understand your plea for help.This company is helmed by a bunch of jackasses.A typical trademark of government-linked companies.

On 11 October I wrote on the expected price decline of crude oil due to declining demand in global consumption brought about by the global recession.

In my article "Where Crude Oil Heading For" I predicted that price would fall below the US$50 per barrel before the end of the year.OPEC is now taking steps to cut down production to stabilise prices.

Many OPEC members were over-spending their windfall for the past 18 months on the assumption that oil price would stay at high level.The spending spree in some OPEC countries have been unashamedly financed by other consuming countries forced to pay ridiculously high price for one of the most essential commodities in the modern world without which it can bring untold human miseries and paralyse the world's industry.The high price have to certain degree played an important part in the global economic chaos.

OPEC accounts for 40% of global oil supply and can influence or control prices in a stable economic situation by cutting or increasing production output.In a severe economic downturn the law of supply and demand would decide the idle price the global market should pay.The picture is increasingly moving in that direction and OPEC are now trying to stop the price free fall with cut in production, which they will find increasingly difficult to control as the recession moves into high gear in other industrialised countries.There would be major decline in industrial output in India and China starting in the 1st quarter of 2009.

OPEC countries have benefited and compensated by the strengthening of the US Dollars the past few weeks.Price is now steadying at US$67 a barrel and would dip further as more bad news come out of the global economy.

Below is what I wrote in my earlier article:

"With increasingly high unemployment in the developed economies, industrial outputs are going to plummet to a low level and consumption of energy would likewise follow.

As more people lose their jobs, businesses going into bankruptcies and reduction in global industrial outputs the demand for oil would show a sharp decline.Consumption would continue to decline as long as the global economy continue to shrink which is expected to continue well into 2009.With reduced global demand prices are expected to fall below US$50 a barrel before the year ended.

If the global recession become hard-headed and carry on without any sign of recovery than prices may even drop below US$30 per barrel by the first-half of 2009."

The oil-producing countries have had it too good and have been totally inconsiderate to poorer countries by demanding ridiculous price for their oil.

I believe crude price should stay around the US$50 per barrel, a reasonable threshold for both oil-producers and the rest of the world.

Anything more is extortion.


Anonymous said...

TMnet usually very helpful since they had some sort of revamp even the "main" Telekom on Raja Chulan is very efficient.
Were you in KL?

What can OPEC do? What will they do/be without oil?

Hantu Laut said...

No, my dear, I am in the Wild Wild West, a place called Sabah.

The problem is when you have problem,you have to call some idiot in KL, who would than call someone in Sabah.Most of the time they either don't do it or forgot to convey the message.

We didn't have this problem before when we call the local office here.

Even worse the bloody company call Astro.Try call their toll-free number if you can get through on your first few attempts you must have magic fingers.

OPEC is a bunch of hyenas!

Anonymous said...

You don't know what extortion is until you've worked with the Arabs.

chapchai said...

How do you oracles rate the ringgit in the current situation?

Hantu Laut said...

I have done substantial business with them before.

Hantu Laut said...

The ringgit is weakening against the US$ and may weaken to around RM4.00 level in the near future.

The global financial melt down and recession had created demand for the US$ as more money moving to the US$ as a safe currency.

Mat Salo said...


Read your last few posts with interest, and should I say, also with trepidation. due to my direct involvement as an oilman.

Conventional wisdom amongst us blue collar types is the price of oil should not dip below USD 50/bbl too much since it would mean lay-offs in the oil services sector. I was lucky not to be laid-off the last time it happened during the '99 Asian meltdown where it hit rock bottom at US13/bbl. But my colleagues were not so lucky as some of the less experienced, or older ones was put on the block. I had a pay cut off course at but at least I had work. I was simply fortunate to be locked in a long-term development drilling program in Vietnam at the time.

You're right, of course, GK. I've been in this line for two decades and the giants I drilled for like XOM, Shell etc were making profits even when the price of oil were hovering in the low teens. What more now. Granted, costs has also gone up - like my salary for instance, unadjusted for inflation, has gone up five-fold in the last 15 years or so. It's no surprise then XOM is the LARGEST company on the face of this earth - of any type - bar none.

I think the USD 50 - 70 US/bbl should be an ideal price. Anything more would jeopardize Big Oil hegemony and their interests. And mine too. Great analysis, G-K, but personally I hope it won't dip below 50. But the jitters in the financial sectors would probably inadvertently drag it down as you pointed out. Only after the outcome of Nov. 4 - or realistically only after the inauguration next January- is when I believe the prices would be stabilized as markets look for directions from the new King of The Oval Office.