28 June 2008

Fuel price Roller-coaster: The ride continues...

There are several explanations of the term roller coaster. The first impression of it reminds us of a popular ride developed for amusement parks. However, the basic meaning of the word roller coaster is something characterized by abrupt and extreme changes. This time my intention is not to share any thrill associated with a roller coaster ride; but to talk about a 'shock-wave' created due to the skyward fuel prices all over the world. Specially, developing and under-developed countries are finding it extremely difficult to cope up with this scenario as such, new technological innovations are becoming a compulsion.

The present havoc created in the fuel market around the world is a result of ever rising consumption, especially in the rapidly growing economies like China & India; and failure to address the concerns by the Organization of the Petroleum Exporting Countries (OPEC). The perception that supply is having a difficult time keeping up with demand growth has also contributed in the continued upward trend in oil prices. Several disruptions in supplies from some OPEC countries, like Nigeria (largest producer in Africa); as well as the on-going geopolitical concerns in countries like Venezuela and Iran, are acting as catalysts in the current oil price volatility. At the time when major non-OPEC players are blaming OPEC countries for the crisis arguing that oil production has not been kept up with increasing demand; Saudi Arabia and other OPEC countries say there is no shortage of oil and instead blame financial speculation and the falling U.S. dollar. But the point is: this blame-game is not going to help the cause. Whatever be the reason, oil price continues to have a roller-coaster ride.

But what could be the main reason behind this? Is it only due to the falling dollar? Because, when the value of the dollar falls, the nominal dollar prices of internationally traded commodities (gold, rice, oil etc.) increase, as more dollars are required to purchase the same quantity of the commodity. Likewise, a weak dollar should lead to higher commodity prices. In addition to this, there is an ever rising global inflation recorded during past 5-6 years. Economic activity around the world is scaling newer heights in post 2000 era and, on the other hand, the oil-supply side is almost constant. I am not an economist. Its just my perception over the issue that is being confronted by whole world and, the worst part is, there seems to be no authentic counter measure to this growing problem.

The another thing comes into my mind is: is the oil-politics redefining the global power game, threatening to shift the traditional "power-balance" away from Europe, Japan and the United States; towards the Middle East, Russia? I don't have the answer to it. The other day, I was talking to some of my friends on this present oil-price hike issue. There was some interesting thought put forward that the "reason" must have something to do with the USA's strategic oil reserves.

It seems that a stronger dollar and market-compatible strategy by USA over oil might provide some relief from current havoc. In addition to this, OPEC also should, probably, intervene and try to resolve the problem.

But there is second line of thought as well: are there some genuine concerns about long-term oil supplies prospects and the consequences of a fossil fuel economy? If that is the case, we must seek some alternative energy sources along with energy saving measures to deal with the crisis. There are some efforts being made in the quest for alternative energy since recent past. But, why this has not been done so seriously? Are there any deliberations for letting the problem grow up to a higher level? Probably, the price of oil has not reached to an alarming level. Earlier too, investment in alternative sources started back in the late 1970's, when the price spiked for a while. But the prices soon declined and stayed down for another 25 years and killed those projects related to alternative energy search. Investors may not invest again until they are quite sure that the price will stay up. So, has the oil prices reached up to a high enough value? I am not sure, but I have heard predictions of the oil prices reaching up to $200/barrels in near future.

But $200/barrels price? How is this world going to cope up with this? and what are the options for under developed countries like Nepal?

Well, nothing lasts forever! So, lets hope that the crisis also will not go infinitely. At some level it might become economical to develop substitutes. Indeed, even at the present price level, alternative sources of energy seems to produce genuine profits. The present crisis will also compel people to optimize the usage of fuel and opt for conservation, which is not bad thing at all.

Last month, I happen to experience the roller coaster ride at the "Universal Studios" in Osaka (Japan)...and I must confess that the ride was "scary". The "thrill" of roller coaster is not due to their speed, but rather due to their "accelerations". Lets hope that the accelerations in fuel prices will reverse as like in the roller coaster. But, for now, the rise continues...

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Lukmanul Hakim said...

Dear Deependra,
Oil price or other energy-related issues can not be separated from global politics, AFAIK. Those who dictate energy price posses a great power, IMHO. Be it fossil-fuel or be it the so-called renewable energy. Be it the energy for running the industries or be it food for "energizing" people. And the "under-developed" countries or any energy-consumers can not do anything except keep on asking the energy producers to have mercy upon them. LOL. Be it fossil or the so-called renewable energy. Sorry for this pessimistic comment. Anyway, for some countries with alternative source of energy to oil, they'd better utilize it now and conserve on fossil energy. IMHO.
ps. Nice post, Mate!

Basanta Gautam on June 30, 2008 at 8:31 AM said...

Nice and timely analysis Deependrajee.

'Oil' is the main plyaer of global politics. Everything from Palestine conflict to 9/11 to current chaotic Iraq is all due to this oil politics. While oil producing countries and other powerful countries are actively involved in this politics, countries like Nepal have no say and living on others' mercy.

Nobody can stop Chinese or Indians from getting developed and using of course more 'oil'. The only way out of this crisis is more oil production or development of alternative sources. More production may not be a good idea in long term. So using renewable sources may be the better way. For Nepal, it may be the only way left.

We can utilize our hydropower resources well. It is true that we can't dream of all-electric vehicles soon but even replacing all the diesel powered generators only will give us a lot of breathing space by reducing our dependency on oil.

I think we can minimize our dependency on oil to a great extent. Only 'fuel' we need for that is the political will and coordinated efforts first from government. It is sad that our parties, leaders and governements always seem busy for something else and have no time to think in this direction.

Anonymous said...

Dear Lokman,
Its nice to know your ideas on energy issues. Thanks for sharing opinion on "helplessness" of the under-developed countries.

Basant ji,
It seems that "politics" is behind this oil crisis & "crisis" is taking a heavy toll on the people all around; especially, from the under-developed country like Nepal. I appreciate your views on possible alternatives of "fueling" Nepal.

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