Sunday, June 08, 2008

Some Thoughts on Oil Shock

Datuk Seri Idris Jala, CEO of Malaysia Airlines, believed that there was no global fuel shortage. (The Star, June 5, 2008)

Idris Jala was a former senior executive with Shell. Speaking at International Air Transport Association annual general meeting held in Istanbul, Turkey recently, he said,

“Look at the oil tankers at sea. If they are not moving and just floating out at sea, that means they have no crude or processed oil to transport. That is not happening and this can only mean there is no shortage.”

I am not sure if his reasoning is correct. We know that there is shortage when demand exceeds supply. Based on the example given by the MAS CEO, we can deduce that supply for crude oil is consistent. What has not been mentioned is that demand is on the rise.

Furthermore, the fact that there is no shortage now doesn’t mean there is no shortage in the near future. After all, crude oil is traded in futures market.

Anyway, if Idris Jala is right, the oil price should eventually drop, as speculators sell their oil futures. The MAS CEO thought that US$40 was the “fair value” for a barrel of crude.

Now, while I am feeling the pinch of the oil shock, I hope the crude price will NOT drop to $40 per barrel. At that level, we will not give a thought to renewable energy and energy conservation. Perhaps a figure between $80 and $100 is just right.

As for the price at Malaysian pumps, maybe in the RM2.40 – RM2.70 range.


  1. I guess price for taxes and fuel of flight will be increased soon too..

  2. keeyit
    You have already book your flight to Krabi, so no worry la...

  3. it is very easy for the price to shot up... but to come down, u seriously think that is possible ?

  4. Everything up up up. Chap fan price also increase.

  5. 迷迭香
    Share price goes up slowly but crash fast. Do you think oil price will be similar?

    No problem if you don't plan to buy a new lens :P

  6. frankly, i doubt it...
    even if the petrol prices gone down, dun think the noodle and rice at the hawker center will be cheaper...

  7. I'm with you on this, KS.

    May high price be a deterrence to those who had taken things for granted.

    Too much emphasis is on the cure (the 40% price increase) than the prevention (how to use 40% less).

  8. 迷迭香
    I gotta agree that noodle and rice won't get cheaper...

    We are in a dilemma now. On the one hand, we want to save the planet. On the other hand, we find the 40% increase in petrol price too drastic.

  9. apparently, the oil price is just an estimate by these fund managers. which may or may not be true.

    but i agree with you on looking at alternatives which can be better for the environment :)