Is the Arroyo Government Doing Enough?

The Arroyo government is saying that it could not be blamed for the price spikes because the problem is international in nature. That is only half the truth.

Vol. VIII, No. 14, May 11-17, 2008

The Filipino people have barely been able to breathe after the shock of the P1 per liter increase in oil prices last May 3 when we were informed that more increases are forthcoming. In fact, the warning is that twice a week increases are to be expected in stead of the weekly surprises we are being subjected to. The reason being put forward is that oil companies need to recover losses of around P6 to P7 pesos per liter. (It’s as if oil companies are losing money and they do not occupy the six of the top 10 companies of Fortune Magazine’s Global 100) But that grim announcement came before oil at commodity futures market hit another record high.

The news that the Arroyo government is set to reduce price subsidies for rice being imported and sold by the National Food Authority (NFA) have barely sinked in when another round of spikes in rice prices are in the offing with the increase in prices of the country’s staple food also in commodity futures market.

The Filipino people are still wracking their brains on how to cope with rising inflation, which reached around 8 percent in April, according to the Arroyo government’s conservative estimates, when even higher prices are to be expected with the oil price spikes, which is projected to reach $200 per barrel this year or the next.

With the Filipino people already experiencing difficult times and could expect more hardships in the future, the question is: Is the Arroyo government doing enough to protect the people’s welfare?

The Arroyo government is saying that it could not be blamed for the price spikes because the problem is international in nature. Is it?

Half of the problem is international

There is some truth in what the Arroyo government is saying. Oil prices are hitting record highs and the tandem of oil companies and speculators are to be blamed.

Fears of shortages due to increasing demand, falling inventories, and probable disruptions in production caused by wars and political instability have always been cited as the reasons for oil price spikes. But there has never been any supply shortage so far and yet oil prices have continuously been increasing.

In fact, the Organization of Petroleum Exporting Countries (OPEC) has persistently refused to increase production because there is enough supply. And if one is to read the news carefully, the benchmark of prices being cited are that for deliveries months ahead at the New York Mercantile Exchange – for light, sweet crude – and the ICE, for London Brent. The May 8 increase to $123.75 for US crude, and $122.32 for London Brent amid little consumer is demand is revealing. As Shokri Ghanem, head of Libya’s National Oil Corporation, aptly puts is, “”It is the same old story-speculation and geopolitics.”

Who are profiting from these? They are the speculators, exemplified by the owners and clients of finance investment houses such as ING, JP Morgan Chase, American International Group, Goldman Sachs, Merrill Lynch, Bear Stearns as well as banks cum investment houses such as the Citigroup, Bank of America – the same gainers and eventual losers in the subprime mortgage crisis in the US – and oil companies such as Exxon Mobil (no. 2 in the Global 100), Royal Dutch Shell (no. 3), BP (no. 4), Chevron Texaco (no. 7), ConcoPhillips (no.9), and Total (no. 10). Their ranking in 2007 was based on revenues but these oil companies are, undoubtedly, also among the top in terms of profits – Exxon at $39.500 Billion, Royal Dutch Shell $25.442 B, BP $22 B, Chevron $17.138 B, ConocoPhillips $15.55 B, Total $14.764 B. Their profits are equalled only by finance investment houses and big manufacturers such as General Electric, a supplier of military equipment and armaments.

Exxon posted an $18.9 B profit during the 1st quarter of 2008 when prices averaged $98 per barrel. Royal Dutch Shell and BP likewise posted big first quarter earnings. But oil companies are grappling with weak production volumes – indicating a glut in supplies and weakening demand – and problems in passing on higher prices to customers.

The gainers in the increases in rice prices are not as visible. But increases in the price of rice, as well as wheat and soybean, are being pushed by commodity futures markets. Financial speculators trading at the Chicago Board of Trade, have been responsible for about an 80 percent increase in rice prices this year. The Chicago Board of Trade is a commodity futures market that is known for trading in agricultural commodities before it expanded to gold, silver, and financial futures such as bonds. And the most recent increase in rice prices was brought about by trading for July deliveries. Rice, according to a May 1 report by the Philippine Daily Inquirer, is being looked at as the next big commodity play – after oil, which is at the point of decreasing demand because prices have gone too high, and the subprime mortgage debacle.

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