Supply

Things were looking up last week. Ahead of the OPEC meeting in Vienna where the cartel agreed to increase oil supply by a million barrels daily, crude prices dropped.

The drop in international crude prices reflected in our pumps last Tuesday by way of a substantial rollback. Many expected the decline in oil prices to continue, bringing down the prices of a major contributor to our inflation rate.

Last week’s rollback encouraged speculation our inflation rate might climb down. We could end the year with an annual inflation rate well within the projected range. So much depended on how international oil prices will behave.

The downward trend, however, proved short-lived. By midweek, oil prices jumped higher. In all probability, we will have an oil price increase next week instead of the anticipated rollback.

The most proximate cause of the uptick in crude prices is a warning issued by the US against importers buying Iranian oil. The Trump government, we will recall, unilaterally withdrew from the international agreement supervising Iran’s nuclear industry. As a consequence, the Americans restored economic sanctions against Iran and expect other countries to toe the line.

The US warning against importing Iranian oil coincided with a supply disruption in Canada, falling US crude oil stocks and uncertainty over Libyan oil exports. The US has also imposed sanctions against Venezuela, a major oil exporter. Even without those sanctions, Venezuela has been unable to improve its refining facilities after nationalizing the oil industry. The Latin American country has a rapidly failing economy even as it holds one of the largest confirmed oil reserves.

If Iranian oil is taken off the market, total oil supply will scarcely meet demand. Although the OPEC has “nominally” authorized increased production up to a million barrels a day, only about 600,000 barrels will be available. This is because, during the period when oil prices were depressed, hardly any new capacity was added by the oil producers. Meanwhile, global demand has increased due to economic growth.

Even the much vaunted shale oil producers in the US and Canada could not muster the volume of production required to maintain ample supplies in the market. Shale oil production is price sensitive. It becomes profitable only if crude prices are well above $60 per barrel.

Crude oil prices are, unfortunately, vulnerable to the vagaries of international politics. US policy towards Iran and Venezuela is only one example of this.

Like the US, Saudi Arabia will want to keep Iranian oil locked away. Iran and Saudi Arabia are rivals for regional power. The relationship between the two countries constantly borders on hostility. Iran has been supporting Houthi rebels in Yemen, keeping the Saudi’s militarily engaged.

Oil industry analysts are predicting a return of oil prices closer to $80 per barrel. It is a prediction based on the industry’s fundamentals. Not even Russia, with its vast oil reserves, could overcome those fundamentals.

For us, nearly totally dependent on imported oil, the uptick in crude prices will be magnified by the depreciation of the peso. It will be a challenge, hereon, to pull the inflation rate to below 4 percent.

Off again

Self-exiled communist leader Jose Ma. Sison released a statement the other day announcing their withdrawal from further peace negotiations with the Duterte government. Instead, says Sison, his group would participate in the “Oust Duterte” effort.

President Duterte, we will recall, ordered the postponement of further negotiations with the communists to allow for public consultations on the elements being negotiated by the two panels. Until that point, the communists seemed willing to wait. Their local flunkeys were, in fact, staging demonstrations demanding continuation of the peace talks.

Things changed, it seems, when President Duterte decided the negotiations should be held in the country. That means Sison will have to come home. Doing so, however, might complicate his own standing as some sort of political refugee in Holland. It will pull the rug from under his own claim that returning to his home country would endanger his life.

This seems to be the critical consideration as far as Sison is concerned. He appears unwilling to risk his political refugee status, which allowed him to live in the relative comfort of Utrecht complete with a Dutch government stipend. He must be afraid that if he agrees to travel to Manila, he might not be able to return to Holland.

For Sison, who unjustly appends the title “professor” to his name, the risk of losing his creature comforts is the ultimate consideration.

The communists expected a stand-down arrangement to come along with the signing of something called a Comprehensive Agreement on Social and Economic Reforms (CASER). They are being presumptuous.

How could they override all our institutions by framing our social and economic policies on the basis of negotiations? The communists have neither a grasp of the intricacies of policymaking nor a properly developed view of the country’s future in a technology-driven age to entitle them to commandeer our social and economic policies.

The CASER will make our country a Cuba at best and a Venezuela at worst, considering its antiquated economic thinking. Until the peace talks were suspended, they were trying to con the government peace panel to sign this anomalous document.

If the price of peace is to surrender the country’s future to a bankrupt ideology, that will be way too costly. If the communists think they can bamboozle a duly-elected government into granting their every caprice, they are grossly misled.