The oil fiasco

It is no doubt an undeniable fact that newly developing countries have a thirst for oil. China, primarily, followed by India, inflicted a blow to the price stability through increased demand. A second contributory factor to soaring oil prices was the likes of hurricane Katrina, a gift of divine providence which we have to accept and circumvent, and the Iraqi war, a self-inflicted punishment. These disrupted oil production which curtailed supplies and added to oil shortage. I have heard it said, however, that what really contributed to the oil price surge is in fact speculation. It is an opportunistic move by the trade circles and is effectively normalised by competition and supply and demand balance.

It is interesting to note from information obtained from Money Week that during the 1970s the price of oil was between $10 and $17 a barrel. The Iranian Revolution in 1980 and the Iraq-Iran war caused the prices of oil to explode. These recorded their all-time high at roughly $40 per barrel. Adjusting this figure for inflation (in today's dollar terms), oil had in fact peaked at $90 a barrel in 1980. When the ravages of war settled and supply and demand balanced out, so did the price of oil.

The peak in the price of oil in August - $70 a barrel - seems less alarming in the light of the above. Why all this turmoil, then? The oil index shows weakness setting in and further weakness is anticipated. This view is shared by a number of competent analysts.

The price of oil as quoted by the business edition of the BBC news on October 24 was $59.56 a barrel in early Asian trading. The Financial Times reported (October 27) that "Crude oil prices tumble on solid US inventories".

Looking at the oil futures, the trend is also weaker. I quote from SMH Australia: "futures slide suggests oil may have peaked" (October 27).

I find it quite ludicrous and unacceptable to see announcements bandied about in the local news media of $70 a barrel. In reality, the price of $70 a barrel has now faded into history. The current price of oil is in the very low $60s. Why is the public being mislead?

Now we have it officially. The water and electricity surcharge has been increased from 17 per cent to 55 per cent and petrol stands at over 48c per litre. If purchases of oil were made when the price was at the peak, I would hazard to say that it was highly incompetent of whoever was responsible.

The average price of oil in round figures to date this year stands at $52 while that during the same period of 2004 was $38. This represents a 37 per cent increase. My question is simple: Why was the surcharge set at 55 per cent? This is disproportionate to the price rise of oil on the market. It seems to me that some very incorrect decisions were made when attempting to balance the additional amount paid for oil. Either the 17 per cent was too low and did not cover the real difference in the price or the 55 per cent is offsetting some other shortfall. What I do know is that one just cannot burden the public with an increase of such gargantuan proportions in oil related services and hope that this will solve the problem.

The crystal ball predicts a gloomy future. The enforced retrenchment by the business sector in an effort for survival can only result in job cuts or a reduction in perks, bonuses, allowances and overtime. No doubt, there are a few who can afford the increases but we cannot base our decisions on this section of the community. They do not represent the Maltese population. To spell it out bluntly: How is the majority of Malta's citizens going to cope with higher water, electricity and fuel costs? We must not forget the senior citizens. How are they to cope? Who can answer this question successfully? I don't want the answer to take the form of "cut down on wastage". Of course, waste is not to be condoned but who can afford to waste in this day and age, except a privileged few?

In short, less income means less contributions and higher social benefit allowances; a double edged sword indeed. A reduction in income by way of less perks etc, which is further curtailed by having to cope with higher energy and fuel costs, will result in a cutback in the retail sectors which, in turn, have to finance their additional running costs on a reduced income.

This hefty burden on the public can only create a totally negative vicious circle.