Oil falls below $62 on economic gloom

Oliver Cini

Oct 28th 2008, 12:30

I see that many people here are becoming more aware of our current situation. Now what we can do?
Facts:
We Depend On Fuel Oil
We Have no structure to counter this sorts of events.
We Have a waste mentality.

This are facts that we us Maltese can argue about.

A Solution.
Gov get a decent paying systems where Fuel will not hurm the economy but chargea little more and invest it in alternative energy ie: Wind Farms etc not just one but Multiple so to increase that 4% to at least 50%.

Get Out permits for the use of bio mass and bio petrol and more bio diesel into the normal diesel at least with 15.

This will all help to reduce our dependecy on the out side work as regards to fuel.those giving us a step ahead when advertising our country for more busniess to come here.

Education.
Lets learn that what we us we have to pay and don't you leave the tiolet all night with the lights up. Use alternative lighting like ( LED'S for example) that is not the goverment prerocative to start saving at home.

Ray Gatt

Oct 28th 2008, 11:33

@ I Galea - I suggest you practice what you preach to others Mr. Galea, since you obviously see the world all red. Nothing the blue half does is good enough for you. So I suggest you stay put. Another four and a half years at least. When your red party was in power for 16 violent years, the world's economy was at it's best and all your party had to offer us was doom, gloom, tightening of the belt, corruption galore and 'korpijiet tax-xoghol'. Now that we live in a world full of turmoil and economic downfalls, we still live a good life, and that's because in the last 20 years, a PN govt. upgraded our standard of living. Who would have thought in the 70ies and 80ies we'll have all these new cars on the roads, computers in our homes, water and electricity not being a luxury anymore, university for all, finding all we need in our stores and the list could go on. I suggest you be honest in what you write and say, if not with the others, at least with yourself.

R. Azzopardi

Oct 28th 2008, 09:14

To all those mntioning fuel prices in the USA - please remember that a US gallon is 3.8 litres as opposed to the Imperial gallon (4.55 litres). Furthermore, I can assure all of you that our American friends consume much more fuel than the average Maltese citizen. The bottom line is - high wages in the States or not, fuel prices are high for everyone.

Frank Buhagiar

Oct 28th 2008, 00:00

I think it is about time that The Times publishes an article which explains hedging.

Hedging is basically a furture contract which gives the buyer the RIGHT to buy a good for the price mentioned in the contract. In no way it means that the buyer of the contract HAS to buy the good!

So if the government says that it has hedging agreements for 85 dollars it is good in case the price goes back above 85 USD. But the government is not bound to purchase the oil for 85!

Thats why hedging is also called an insurance for a price. Nothing more and nothing less!

Such future contracts exists as calls or puts. With those both instruments you can insure prices either against rises or drops.

In fact I could never understand WHY the government used to be against hedging (price insurances) at the beginning. Of course such insurances cost some money but give in return price stability.

Back to my first sentence I would be really glad to see an article about hedging, future contracts in the business part of the times.

Paul Smith

Oct 27th 2008, 21:34

Reading between the lines on here, the bottom line is: Enemalta needs to pay back a lot of money, or it's lights out Malta!

It may not be a bad rehearsal for Peak Oil and Peak Gas, coming to a town like your's and mine in a few years from now!

I Abela

Oct 27th 2008, 20:32

Karl Abela, we already heard Tonio Fenech saying your exact words. Why do you PN apologists still think that we are idiots? Why are you trying to tell us that Enemalta has a deficit of 50 Million because of the subsidies? Why, instead don't you tell us, why at Enemalta there are much more people working than actually necessary? Why is the Marsa powerstation still running despite its huge inefficiencies? So until you have a very good answer to these questions, just stay put, and start seeing the world in technicolor, not just blue only.

P.Schembri

Oct 27th 2008, 20:20

@k.Abela. It's a fallacy what you're talking about. The minister himself said at one stage, that the money is for the debt that Enemalta had incurred. In another instance he said that the money is for further development of Enemalta. Something to the tune of 55 million Euro. About the subsidy, who told you that we're being subsidised for 20%? If you give subsidy why then we pay vat on the surcharge? Isn't it double taxation? And does this not increase the tariffs? So why the subsidy. The government was giving us something with one hand, and taking it with the other. It's better to see where are Enemalta's deficiencies instead of continuing pumping more money in this ailing enterprise.

Karl Abela

Oct 27th 2008, 18:32

Electricity subsidy has helped the country in the past but now its crippling the country. Even the surcharge was subsidized by 20% (we were never paying the full surcharge) and now a deficit of 50 million is the result. We owe this 50 million to the government because that deficit is a direct result from the subsidy that we received.

Postponing the energy tariffs is therefore a A HUGE MISTAKE. Oil prices will be shooting up again and the 50 million enemalta deficit will triple if we don't face the music NOW.

The writing is on the wall....OPEC will cut down on oil production to stop the price slide and increase the price. Besides, you just have to wait till December when the cold winter forces increased usage of oil....then we will see that the oil price will be back to where it once was.

Its incredible how Tony Zarb and Dr Muscat (the prime movers for the postponing of the tariffs) will manage to cripple the country even of they are not running the government.

I Abela

Oct 27th 2008, 18:15

Andre Xuereb, and All other PN apologists. This is all TORT TA GONZI (and EFA). When you blame the current financial situation for all this mess, you are dead wrong. 1) Enemalta has been mismanaged for a long time, and its financial situation is disastrous to say the least. Who was responsabile for managing Enemalta since 1987? 2) Stop saying that nobody in the world knew where the price of oil was heading and nobody knew that this financial turmoil was forthcoming. I knew, (contact The Times webmaster to see my earlier comments if you wish), and so did most economists and market traders. 3) What your dear Gonzi is doing, is just making sure that no matter how low oil goes, we would still be paying dearly for it, since PN is not adjusting the surcharge rate but simply the TARIFF. That means if in the future we buy oil at $1 a barrel, we would still be paying dearly because the tariff is what it is. 4) In the EU, oil and gasoline and diesel are taxed only so that the profit from such taxes go towards road maintenance. Is it the case here?

l Galea

Oct 27th 2008, 17:02

André Xuereb
Of course it is tied with the eu.

If we were not members the Government would have every right not to tax oil and energy products in order to help the industry and the people.

With eu membership we have to obey the diktat that we cannot even reduce the minimum tax levels established by the conscience-less eu dictators, let alone remove taxation on these and other products.

The eu dictators are so conscience-less that now that the price of cereals has gone down on the international market due to a good harvest, they are going to re-introduce customs duties and levies on cereals.

The petty dictators do not care less if people have to go hungry in order for the member countries governments to obey their diktat.

So you see Mr Xuereb, everything has to do with the eu.

Joseph Cauchi

Oct 27th 2008, 16:44

All the comments that the Government should buy the crude oil at its present price, which is @ US$65 per barrel, does NOT hold water. Why? Because Government does NOT buy crude oil, but REFINED FUEL, like petrrol, aviation fuel, diesel etc...

Therefore the price the Government pays is the price quoted for refined fuel and not for crude!

Joe Caruana

Oct 27th 2008, 16:32

So the nationalists are not even capable of doing a U-turn. Remember how they were against hedging. There is nothing wrong to u-turn in the right direction, but this..... Min jitkaza............

Joe Vella

Oct 27th 2008, 15:26

@ Charles Busutil

I believe what the Minister said that there is no need to adjust petrol prices because the current consumption was bought at around $85.00 per barrel when the Oil was North of $120.00 per barrel.

Todays oil price of $62.00 per barrel pertains to the December Futures. Meaning any oil purchased today will be delivered in December.

M Vella

Oct 27th 2008, 15:25

Let us get real people.

Opec slashes production and price still dips.

This tells us that people in the West will be using less oil.

Yet here, we get no leads from Government and gobble the stuff unreservedly.

We should take the initiative by organising transport sharing for starters.

Anyone doing the St Paul's Bay morning run departing at around 7.15 to Valletta via Naxxar Sta Venera Msida returning at 5pm? 4 spaces available on a rotation basis.

Joe Vella

Oct 27th 2008, 15:15

@ L. Galea

Who told you that Oil is not taxed in the USA?

US Fuel Duty
The current fuel duty rates are shown below and are used to calculate the percentage taken as tax from the average prices:

Unleaded $0.34 cents per litre

Gasoline taxes are levied in various ways in different states. Some states, such as Louisiana, levy a flat rate per gallon. Others charge a tax similar to a sales tax in that it applies to the monetary amount of the gasoline sold. Other states allow local communities to levy gasoline taxes in addition to any state taxes that might be levied.

The reason that Gas prices vary in various parts of the USA is because of the differnet level of Taxation from one State to another.

d.attard

Oct 27th 2008, 15:09

Andre Xuereb.

The main scope of hedging is to achieve constancy not to save money. Minister Gatt did say that hedging deals up to a month ago saved millions. Current hedging is in any case well below the all time high.

In any case Hedging acquires supply of oil for only a limited period of time and Government will now enter into new agreements at a much lower rate.

From what I can understand based on official and unofficial noises, past management of the corporation has a bearing on pressures on Government coffers. If this is the case, Government should now come clean as a first step in putting our house in order.

Jon Miceli

Oct 27th 2008, 14:32

@A Xuereb (and therefore H Borda too).

And not just that. The hikes are also a result of a two-pronged investment:
a) Closure of Marsa powerstation to be replaced by expansion of Delimara Plant.
b) Investment in grid to connect us with Sicily.
These run in millions of euro that have to be covered through the tariffs.

j grech

Oct 27th 2008, 14:29

Whether one is an economist, a negotiator , an expert in oil markets, so on so forth,it doesn't take much to realise that the Maltese consumer will once again be taken for a ride, the only impact this slump in oil pricing will have is to prove beyond any shadow of a doubt that during the last election we were duped. Gonzi was returned on the basis of his credibility, that has now gone out of the window. On the other side we have an opposition that doesn't bite, it can barely bark, so what are the options.....maybe a credible third party, my view is that there has never been a greater opportunity for such a thing to pick up momentum, can the third party be Alternattiva, possibly, but some verve needs to set in. Now is the time for Alternattiva to conduct home visits , now is the time to seek endorsements from disgruntled voters, taking on the nationalists shortly before an election is tactically wrong, as at that point the party is at its strongest and tribal sentiments blur logical thought. But for God's sake don't even dream of an alliance with Labour.

peter brincat

Oct 27th 2008, 14:22

even now that the local fuel market has been liberalised and we have two new importers, we do not expect the price of unleaded petrol, LRP or diesel to go down much, as the government has put in place so many taxes that there is no way that anyone importing these fuels and expecting a decent return on their investment, can come up with lower prices.

Alexander Morana

Oct 27th 2008, 14:18

Mr. E. Gatt this is a demand and supply factor coming into play, and even so a psychological one too.
Gonzi, hedging, doom and gloom has nothing to do about it. However, since you mentioned the markets, a while back I mentioned that gold would be the commodity to watch and invest in but now that currencies are more attractive.

PS remember what comes downs will go up and what goes up will come down too. Timing is of essence in this matter. Oil will go up again shortly because the geo-politics of the world has not changed.

Paul Smith

Oct 27th 2008, 14:17

One wonders whom is in charge of economic policy in Malta? If a laymen like myself could see the economic crash coming and have actively been writing about it on a UK website for the past 4 years, i have also been able to make a corelation between the economic downturn and it's ability to destroy the value of commodities via demand destruction.
all of this information is available on: www.bloomberg.com www.housepricerash.co.uk www.theoildrum.com and many other finance related websites, one wonders why ministers in the finance department dont pay careful attention to websites like these or leading economists like nouriel robini whom have been spot on time and time again.
Also the coming oil/gas crisis, although prices have gone down, this is only temporary, oil and gas are finite, within the next 5 or 6 years, natural gas will become scarce and expensive as will crude oil. At least the government is waking up to that fact.

P Falzon

Oct 27th 2008, 14:15

It never ceases to amaze me what a simplistic view of the world some people have in spite of the advances in communications and technology. Is it that difficult to comprehend that just because the international trading price of oil has reduced that the effect of that reduction takes much time to filter through to our system? Enemalta forward buys its oil products based on advice - and we are then stuck with that cost for the duration until the next lot of oil is purchased - a month, a quarter, whatever.

Many of those commenting below appear to be 'in the know' about the price of oil tomorrow, and next week and next month and next year. . May I suggest you get yourselves a trading terminal and start to forward buy your oil and in the process make millions from your 'inside knowledge'.

I can assure you that all those charged with this forward buying would happily invest their life savings if only there was any certainty about the price of oil tomorrow - let alone next month or next year!!

Noel Barry

Oct 27th 2008, 14:10

Everyone wants to criticize, and I tell you that we are the best in the world in this kind of job. The famous saying of J.F.K. 'It's not what the country can do for you but what you can do for your country" suits you people fine. Remember when the MLP used to attack the goverment on hedging and why it was never done. Well now we bought oil with hedging and you still attack the goverment. You just do not know what you want. When oil was bought with hedging, it was a known fact and all the world was saying this, that the price of oil would go up to $200. So please stop your moaning and criticizing and at least offer some concrete suggestions.

André Xuereb

Oct 27th 2008, 14:01

Mr Sant: If I understand hedging agreements correctly, they are negotiated in advance; i.e.: we are now in a hedging agreement negotiated a few months ago. When this agreement expires, hopefully the price of oil would still low be low and we will be able to negotiate a better agreement.
Having said that, the timing was terrible and (perhaps? I am no economist and cannot hope to be authoritative in this area) our Government could have handled things better.

Re: comments about the failure to privatise the market, I agree perfectly.

Mr Galea: Several airlines are close to bankruptcy because of hedging agreements; so I fail to see how Malta was the only casualty of falling oil prices. The EU, like all things in life, has good and bad points. However, the taxing of oil is very common in the world and I don't know why you try to portray this as having anything to do with us being in the EU. A little clarity of thought goes a long way.

Charles Busuttil

Oct 27th 2008, 14:00

Has everybody forgotten Minister Gatt's promise that if oil should go down below $85 government will adjust accordingly. It is now below $62. Did we hear anything about price adjustments? Not on your life. Minister Gatt should put his money where his big mouth is and deliver.

Duncan Sant

Oct 27th 2008, 13:49

Dear Mr Xuereb,

Someone who is financially knowledgeable would buy oil NOW when it is cheap, to offset the price of when the oil was expensive (eg, If oil was purchased at $140 and now it is $65, buying the amount which has been used until now would push the price down as the aggregate price would be around the $90).

I appreciate that a hedging agreement some months ago was favourable, but with the price of oil as it is now, the government should buy oil. This, yes, is Gonzi's fault, because instead of buying the oil when it is cheap, he insists on just pushing the utility price up. To me it seems that the Oil price is just an excuse to cover up other expenses such as Enemalta inefficiencies, electricity theft , etc.

G.Bonnici

Oct 27th 2008, 13:48

@Andre Xuereb

The problem concerning this Govt is that it does not hedge when it is ought to hedge, and hedges when it ought not to. It is a question of foresight that doesnt exist.

As been suggested elsewhere, and to explain in layman's terms, the Govt should shoulder the actual agreement / burden for the time being, purchases additional supplies at current low prices, then when oil prices rise again, Govt could recover back some money by selling at a medium price, the oil that is purchased at current prices.

l Galea

Oct 27th 2008, 13:42

Mr Xuereb
It seems that our Government is living on the moon for it appears that other countries did not fall into the same hedging trap. Hedging is good, but you have to be careful when you commit yourself, something which the Government did not do which shows its incompetent.

The World Bank and the IMF have been warning about the unsustainable world situation, but no one in Malta took any notice.

Unemployment in the USA it is not caused by high oil prices, but by the Banks mismanagement. If the price of petrol is high at less than $3 a gallon when they have enormous wages compared to us, what shall we say for the price that we pay here in Malta?

Thank you for confirming that europe, or rather the EU taxes oil. This shows how worse we are off in the eu when we have to tax oil and energy products including electricity even if we are going to destroy our economy and people, something which we could have prevented if we were really independent and sovereign and not having to obey the diktat issued by the eu petty dictators.

Simon Joseph Aquilina

Oct 27th 2008, 13:35

The government is still partially to blame for the current situation here in Malta. Oil at the pump in the US reflects the current market price and varies from one station to another. This is also the situation in the UK and other EU countries. Here in Malta it does not; it remains at a high price even when the market price is at a new minimum! Why? The reason is that our government has failed to privatize this market! We are in a situation where it is very important for the people to have money in their hands to spend so that an economic crunch is avoided! I am no economic expert, but this government is doing the exact opposite of that, the exact opposite of what other governments are doing at the moment; that is injecting money into their economies!

George Attard

Oct 27th 2008, 13:27

if we are paying such hefty tariffs because oil was purchased when it was expensive, when may we expect utility tariffs to go down as a result of to-days' cheap oil?

Alexander Brincat

Oct 27th 2008, 13:22

@ Andre Xuereb

It is true that government / Enemalta have entered into hedging agreements to buy fuel oil and other oil derivatives. But has anyone explained to us for how long and at what prices have such contracts been agreed? How many of these contracts exist and on what oil products. The reality, I am afraid, is that the government either does not have the right structures to cater for an aggressive hedging strategy or else, hedging or not, Enemalta could be in so dire situation (we all know it) that there is no other way but to increase prices. Now you pick your choice.

Had the government hedged using a maximum (and mixture) of 3 month and six month contracts, then the situation could (might) have been different. The reality is however different than all of this. Pre election complacency for many years has resulted in panic readjusting dictated by EU rules that should have been well known before the election. You can continue to dream about hedging in your bed at night. After all the word has become a nightmare suddenly, apparently not to you, but to the rest of Malta.

william sciberras

Oct 27th 2008, 13:19

Thank god ! maybe now we will stop blaming everything on the price of oil and start trying to solve the real problems.

peter paul gauci

Oct 27th 2008, 13:17

The only irony I see in the matter is that when Enemalta (through hedging of Crude oil) managed to obtain surplus funds so as to soften the blow of the rising oil prices we had the minister boasting of the benefits of hedging and now as things appear to be working against us no one is accepting that we are now losing money. Obviously hedging has its risks and even the best trader cannot get it right all the time but at least the minister should explain why with the price in freefall there is no light at the end of the tunnel. No matter what agreements Enemalta has in place eventually these will end and with the price of crude remaining in the US $ 60's Enemalta will start purchasing its fuels at much lower prices. Now will these savings be passed on to the consumer in total??

E Gatt

Oct 27th 2008, 13:16

As André Xuereb correctly wrote, Malta is committed to purchasing oil at a higher price due to hedging agreements. The hedging agreements were signed a few months back when the price was low and was expected to rise to around $200 by the year-end. In the meantime the stockmarkets around the world have tumbled and so has the price of oil. Was Enemalta/Government wrong to enter the hedging agreements -No. If anyone thinks so then perhaps they should spend less time on this blog and make millions on oil shares/options instead.

Where the country (government, opposition, unions and the general public) are probably to blame is that we did not have the political will/guts to embrace competition and trim back inefficiencies. If we already had a competitive market in Malta for fuel, then yes, we would probably be paying less at the moment.

André Xuereb

Oct 27th 2008, 13:04

Mr Galea: Of course it does. Everything is the fault of Gonzi, hux veru? I'm not saying that this government is infallible (that would be a very sad joke), but if I remember correctly even Alfred Sant suggested hedging as a good way of mitigating the oil crisis. No one (in the world, mind you) suspected that the world economy would take the downturn it has taken as of late.
The US does not tax oil at the pump (unlike Europe), which has its good and bad points I guess. In any case, $3 a gallon is a very high price for petrol in the US, and I would say that it is just as expensive as it is in Europe (compared to the respective "old" prices).
Secondly, switch on CNN and notice that in the US tens of thousands of jobs were lost in the past week... so not everything is fine and dandy. Yes, the world is entering a recession and we cannot expect to not be hit by it. Tort ta' Gonzi ukoll hux?

l Galea

Oct 27th 2008, 12:56

Remember "Money no problem"?
MONEY for the Government is now a BIG PROBLEM

André Xuereb
This shows an incompetent Government which always ends up making a mess.

In the USA with its high wages the petrol price is less than $3 a gallon

Mike Magri

Oct 27th 2008, 12:55

So.. ".. Oil falls below $62 on economic GLOOM.."...

And here in Malta, we are proposing an EXPENSIVE BOOM on our electricity bills of 95% surcharge and an astronomical revision of utility rates which do nothing else, but keeps on EATING our Euro Spending Power..... !!!!!

And why are we doing this.... ?? Because Enemalta has been MISSMANAGED for so many years, that it is now up to US, (..according to the GonziPN Government..), to save it....!!!!!!

What a cheeky GENNATA.....!!!!!!!!!!

Michael DeBono

Oct 27th 2008, 12:48

Despite the worldwide depreciation of oil...we still pay very high prices for vehicle fuel compared to our wages...and added surcharge on flight tickets...and the utility bills will rise...and this will reflect an increase in the cost of living (it already does).
Why?
Don't tell me because we're presently using fuel which we bought 6 months ago. Please.

André Xuereb

Oct 27th 2008, 12:46

Mr Borda, the only irony is that despite people having pointed this out repeatedly, some people like you still persist in their mistake: Malta has already agreed to purchase oil at much higher prices than the current price due to hedging agreements. The same goes for most (all?) airlines, which is why the fuel surcharge will not be going away anytime soon.

harry borda

Oct 27th 2008, 12:34

Oil has gone down to $62!!! and here the maltese government is still working out the increases for the power bills. How ironic!