Oil Price: Abstract from and explanation to chedet.com (with a brief introduction to it)

First come first, chedet.com is none other than the blog published and self-written by arguably the Malaysian's best leader ever, Tun Mahathir Mohamad himself. Hailed as 'the architect of the modern Malaysian economy' by BBC, he is indeed a humble economic prudent thinker, who are now RM15k/month remunerated Petronas adviser and also the adviser of Proton, Langkawi Development Authority (Lada) and Tioman Island Development Authority.

Now, although, retired and already passed 80 of age, he is still very much active in both national and global political arena. He could well be the single most important factor predisposing to BN calamitous defeat in the previous march National Election. Currently, the blog talk about domestic issues like Judiciary, UMNO (most of his articles about) and especially on the fragility of current government policies.

Undeniably, he's not the perfect leader, especially with the Wikipedia claim that he actually did more damages to Malaysia both politically and economically than he did to improve them, but for certain, he's the one who shaped Malaysia into what we have seen today, being among the finest of the developing countries.

Getting to the point, this article is to explain the Oil Price article published in chedet.com which came out right after the increment of the petrol price from RM1.92 to RM2.70 (78 cents increase) and diesel from RM1.58 to RM2.58 (RM1 increase). The increase came as a shock to us Malaysia amid PM's initial statement saying the increment will take place in August. Not enough with the bad timing, percentage of increase is staggering 40% for petrol and 60% for diesel.

Simple conversion to daily petrol expense:
RM 50 petrol = 26.04167 Liter before petrol price increase

RM 50 petrol = 18.5185 Liter after petrol price increase

It is true, compare to the oil price of UK (about RM6.3) and US (about RM5), we enjoy better amount of subsidy (plus the yearly rebate of RM625). However, if analyze it deeper, the result is rather the opposite, we are facing more increase in percentage compare with the 2 countries (this however may due to the fact that we hold on to the old price 1 year too long). From economic point of view, we suffer even more as our Purchasing Power Parity (PPP) is actually way lower than the US and UK. It simply means the American can afford better to pay RM5 for the petrol than we do for RM2.70. Our Per Capita Income is also only 1/3 of theirs, now it means, roughly every US citizen has thrice the money we have to pay the petrol. Going deeper and cruder, it's like comparing RM2.70 divided by 1 and RM5 divided by 3 (RM1.67). This however, portray the very crude math calculation and of course subject to my limitation in Economic.

What interest me the most however is the 1 concerning the Floating of Ringgit. Floating is the type currency exchange regime by which a government let their currency follow the global market as our currency now. For better understanding, compare the regime with Fixed Currency with which Malaysia adopted to elude the Asian Economic Crisis and highly regarded by the IMF and World Bank as being successful. It is now being referred by USA itself.

True that our Ringgit has been steadily rising. In accordance to the Tun's blog, we hit an 80 cents or 20% increase from RM3.80 for USD 1 (durind Fixed or Pegging period) to impressive RM3.08 (though, I see RM3.20 in publications). Roughly, it means that we are stronger financially to BUY products from other countries. Nonetheless, in a deeper economic sense, it is rather unfavorable. Simply put, what is the good of having 20% stronger currency if the price of imported goods show a higher increment? Worse come to worst, this also means our export price also go up in relation with the higher ringgit price. Definitely, we are highly dependent country. This means we need to sell our products to buy others. We are not really self-sufficient like UK and China e.g., we need the Thais to provide us with the rice and Japanese with the electronic.
We are, like the US. If other countries should fail, we would too. If other countries reduce the no of import from our shores, this could mean we have little money flowing in.

The last matter I will discuss is concerning our oil export. According to the Petronas adviser, we are actually producing 650'000 barrel of crude oil per day and consume 400'000 of them leaving 250'000 for exportation purpose. The oil recently hit the record USD139 (oil price is fixed to USD) per barrel, ergo, the revenue that could be generated by government is as below:

Note: 3 years back, the price of global oil is USD30, now, USD139. The USD109 increment is almost purely product-based with minimal production cost involvement. Henceforth,

Annual national return: USD109 x 250'000barrels x 365days x RM3.08

That amounts to roughly RM30bil but Petronas actually generates around RM70bil annually from other sectors. That the essential reason behind the Petronas never-ending fund of reviving other collapsing nation-owned company like MAS and Proton.

Now, the government is pondering over becoming a full oil-importer country. This way, we could generate more cash buying other countries cheaper oil while selling our high-quality oil with higher price.

Recently, government has announce there won't be any more increment until next march even though the oil price hit the expected USD200 per barrel. I included the article (above) from paultan.org regarding the government strategy to curb the rapid rise of the oil price.

I need to emphasize this is not my opinion, rather an extension and explanation to Tun Mahathir's article. My best wish is to see our beloved country circumvent and break out of the current oil crisis. Malaysia Boleh!


Full article from chedet.com on the oil price could be reached here