Malaysia - The oil price issue. Part 2

(the above image is just a teaser, no pun intended)

So, it seems that my forecast for the new oil price was about 96% correct. This will now prove that whatever the government is planning to do next will be substantially vital to the country's success in dealing with globalization.

Globalization is the merging of local phenomena and culture into a global society. This process is a combination of economic, technological, sociocultural and political forces. Globalization is very often used to refer to economic globalization, that is integration of national economies through trade, foreign direct investment, capital flows, migration, and the spread of technology. - taken from Wikipedia.

So, this means what we're going through is an inevitable process for each developing country whom wishes to reach the status as a developed nation. Why? Picture this, its like you open up a small grocery store, your inventory prices is low (as you may presume), but all of a sudden, there is a Tesco giant mall opened up near by and they provided and even lower prices on goods. So competition begins whereby both will now try to compete in provided better services and lower prices.

Okay, now picture this. Lets relate the above scenario with our current issue. Global oil price issue. Because Malaysia is considered as the small grocery shop. This is because, Malaysia has the resources to produce its own local petroleum. This crude oil is apparently of its premium standard compared to other resources. And US and UAE are the Tesco. They are the giants in producing the oil. Take for example, ExxonMobil, a US based oil company. It's apparently the mother of all Tesco. It control the crude oil prices. Because of its importance in contributing to the US economy, thus for globalization to work, it also contributes to global economy. This giants has the power over the oil price and its distribution all over the world.

What happened in Iraq? The world knows that the US, did wage war on Iraq due to its campaign to fight against terrorism. But infact, what they were after, was the crude oil. Why Iraq? Iraq was an easy target, aside from the personal vendetta the Bush family has against the late Saddam Hussein. It was the perfect target as to compare attacking any of the UAE nations. Plus, Iraq has what the US wanted. And that is crude oil!

During the war against Iraq, the US spent billions of dollars in refining their military forces as well as the usage of the global petroleum increased substantially due to the increasing demands on oil to support their campaign against terrorism. With this, their economy has suffered somewhat due to increase in the crude oil price and caused the economic fluctuation throughout the world. This is because for any developing countries, we depend on the economic growth of the US nations because they practically control the economy.

The only way to avoid the above from having too great an impact on any country, mainly our own (Malaysia), is to not being involved in global trade. This is a fairy tale and i doubt this will happen any time near. If we isolate our economic dependencies locally, we can guarantee that the money flow stays within our country and this will strengthen the Ringgit value. Why cant we make this happen? This is because we dont have the expertise and the proper resources. Simple as that. By hook or by crook, we have to depend on the global economy.

Get the picture yet?
Okay, enough with the basics. Lets start talking about our current oil price issue.

Yesterday, the PM announced that the oil price is to increase MYR0.78 per liter. Thats about...

0.78
____ X 100% = 40.6% increase.

1.92

With this, we can say that, for easy calculation, you can just calculate the new cost for you vehicle usage by adding the 40.6% of the normal price you usually pay. For me, my current cost for my 45 liter car (1.5 engine) would cost me about MYR121.50 compared previously at MYR86.00.
(ARGHHHHH !!! Die lorr !!). So, as you can see, its quite a burden.

But, believe it or not, its necessary to bare. We are living in a globalized economy. No fairy tale here. Its a burden we all have to bare. Why i say, abolishing the subsidy was a good move. As i said earlier in Part 1, that finally the government can be transparent in their usage of our financial reserves apart from actually terminating the governments silly excuse of maintaining power from their "good-heartedness" of previously providing subsidy. With this, now, the subsidy can be used for better usage.

Why cant we use our own petroleum reserve?. From an article i have read, Malaysia is an oil producer of premium quality. Its said, that we actually have oil reserves which was expected to last for another 35years. As we all know, Petronas as our local National Petroleum industry is exporting this oil instead of using it locally. Why ? This is because our oil, may i remind you, premium!. Its at its best quality, so it sells higher then the global market price. Then they import back the oil (lower quality) at the current global price, which is cheaper then what we export out. This gives us profits. But as stated earlier in the news, that Petronas has declared its profit at pre-tax profit of RM908.4mil for the financial year ended March 31,2008 compared with RM903.2mil the previous year.

Whoaa!! thats a lot of profit. How come the high profit margin? The fuel subsidy of course! Please recall that the government previously provided MYR0.30 subsidy per liter for imported fuel. So we got the cheapest oil price ever! And so explains the profits gained by Petronas.


opss.. did you fall asleep now ?? huuhu.. (smack!!! smack!! Wakeup!!)



okay, read on.....

What To Expect Next.
Because the oil price has increased. Its expected that the other item prices to go up as well. Thus will lead to an inevitable inflation cycle, whereby the demands of good will increase (Panic that the prices to go up, people over-stocking, etc).

How to avoid this. As i have written in my earlier article (click here) for a basic understanding on what influences the inventory cost to up.

What the government is planning on doing? (article, picked from the NST)

Fuel subsidy scheme
1) 30 sen subsidy for petrol and diesel (not sure what this means, since the fuel subsidy is supposedly terminated.)
2) Automatic monthly adjustment in petrol and diesel prices, in line with global prices
3) Annual cash rebate of RM625 for owners of private vehicles with an engine capacity of up to 2,000cc, and pick-up trucks and jeeps up to 2,500cc. (Definately not enough! Do the math yourself, based on your monthly usage)
4) Annual cash rebate of most RM150 for owners of motorcycles with a 250cc engine or less
5) Road tax discount of RM200 for owners of private vehicles with engine capacities above 2,000cc
6) RM50 road tax discount for motorcycles with engines above 250cc
7) Fishermen, boat owners and public transport operators will get diesel at RM1.43 per liter. (Told you so !!)
8) Each Malaysian fishing vessel owner will receive RM200 monthly
9) Fishing vessel owners will get incentive of 10 sen for every kilogram of catch landed

Where the RM13.7b savings will go
1) RM7.5 billion goes back as subsidies for petrol, diesel and gas (still dont understand what this means. Is it for logistics? If true, then... i told you so :). huhuhu)
2) RM4 billion for food security
3) RM1.5 billion for cooking oil subsidies
4) RM400 million for standardizing price of rice in Sabah and Sarawak
5) RM200 million for flour subsidy
6) RM100 million for bread subsidy

So with this, hopefully everything is more transparent. I have read some comments complaining that this was unfair. (bla.. bla.. bla.. yap.. yap.. yap..). Complain all you want, criticize the government all you want. It still wont change this fact.

But still, it does makes you wonder. What happens to the toll, taxes and etc collected. Hmm...

So, what can we do?
1) Spending habits revised. We need to change our spending habits. Don't spend unnecessarily for things you don't need. Be wise in spending. By decreasing the things we buy, we will decrease the demands, and thus will decrease its price over time. But if we don't, if we still keep our shopping like a Diva habit, the products demands will increase and so will the price. Simple!
2) Don't use the car within the city limits. This is to save fuel consumption. Being stuck in traffic jams will only be a waste of your fuel. Use the public transport instead. This will decrease the demands of fuel, and as stated in (1), when the demands decrease, so will the price over time.
Lesser cars used, lesser demands on fuel, lesser air/noise pollution :). Only use your car for long distances.
3) Think twice before getting yourself a car! Imported and local cars have different impacts on our economy. Best avoid buying a car if you feel like you cant afford the new oil price. With this, demands and production of cars will decrease. Hopefully this too will then lead to lesser import tax of foreign cars and give our locally produced cars a fair fight with the imported ones.
4) Get a bicycle or a motorbike instead.
5) Support hybrid engine cars or electric power cars (still not yet in Malaysia, i think. Owh yeah.. electric prices also gone up! 18% for private, 26% for businesses. huhuhuhu...).
6) If where you're going is close by, don't use your car. Just walk. But as i know Malaysians, as seen when looking for parking space, if possible, we would park in the shop instead of the designated parking spot. We would still drive our car even when where we are going is less then 50 meters away. huhuh.
7) Convert your car to NGV capable engine, which is cheaper, but the cost for the components and parts are quite expensive. NGV will be available fully through out Malaysia by 2009.
8) Do like what UK does. Ban the usage of cars in the City limits. But this should only happen when the public transport is at its best. And not before!!!!! (Am screaming here)

Wishful thinkings
1) Would Petronas and the government have the guts to sell our locally produced petroleum locally within Malaysia? We have about 35 years of reserve. And we have total control over the price!. (but this means we already isolate our economic growth from the global economic growth. Not sure if its the right move)
2) Ask for salary adjustment and bonus for all (not just government officials okayyy ! i work in the private sector)
3) Raise up our economy and Ringgit value to that close to the USD. How ? don't ask ! hahaha..
4) Use the balance of the previous subsidy to focus on development. Downsize the total number of unemployments and start using them to help circulate our economic growth and at the same time strengthen it.

I guess thats about it. If you have any more ideas, do let let me know.

All in all, i have to say this. Malaysia is now at the verge of really declaring its status as a well developed country or otherwise. Lets see what will happens next. We must reach economic stability if we want to succeed.

Pheww !! Fuh! thats was long! Sorry if i got my facts wrong. Do correct me.

Yeah, i know, this is boring ... so,
Thank you for reading this far.

Cheers,