Small oil players Flying V and Eastern Petroleum Corp. again led the new round of oil price hikes, raising their pump prices by P1.50 per liter.

The higher prices take effect today.

Eastern chairman Fernando Martinez said the latest price increase was “overdue.”

“We should have done these price adjustments more than a month ago. It’s a long overdue adjustment,” Martinez said.

Joey Cruz, Flying V spokesman, voiced the same sentiment.

“We could have done it (oil price hike) last Friday or weekend but delayed it for tomorrow (today),” Cruz said.

Meanwhile, the big three oil firms – Petron Corp., Pilipinas Shell Petroleum Corp. and Chevron Philippines Inc. – said they have yet to decide if they would also adjust their prices.

Oil firms had kept their prices for weeks at Oct. 15 levels in compliance with Executive Order 839 issued by President Arroyo last Oct. 23.

At the height of the oil price freeze, petroleum players claimed that they had to raise their prices by P4.50 to P5 per liter to bring the price of petroleum at par with current international prices.

Oil companies have so far raised their prices by P3.50 per liter since the lifting of EO 839.

The bulk of finished petroleum products being sold locally comes from foreign sources.

Oil importers like Flying V and Eastern use the Mean of Platts Singapore (MOPS) as benchmark for pricing their products, while oil refiners use Dubai crude to gauge prices.

Martinez, however, noted that MOPS is chiefly steady.

“Oil prices in the region are quite stable. This may mean there could be less pressure on local oil prices,” Martinez, also the chairman of the Independent Philippine Petroleum Companies Association (IPPCA), said.

As of Nov. 20, Dubai crude averaged $78 per barrel from October average of $73 per barrel.

In defense of the Big 3

Meanwhile, former socioeconomic planning secretary Solita Monsod told a Manila court that there was no proof that the Big 3 oil firms were overpricing or operating as a cartel.

Testifying as amicus curiae or friend of the court at the sala of Judge Silvino Pampilo Jr., Monsod described as “unacceptable” pronouncements by former National Economic and Development Authority director general Ralph Recto that the pump prices are overpriced by as much as P8 per liter.

“The assumption he (Recto) made is wrong. The base price is wrong. He used wrong data,” Monsod stressed.

“I am not sure, but actually it’s immaterial (if there is a cartel). Because if there is a cartel, it does not seem to have succeeded in overpricing and monopolize profits,” Monsod told the court.

The court is hearing a petition from Social Justice Society for a temporary restraining order on weekly oil price hikes.

The group said there was no justification for the price hikes since the oil firms maintain at least one-month inventory.

http://www.philstar.com/Article.aspx?articleId=526318&publicationSubCategoryId=63

The H1N1 Swine Flu virus knows no borders,has no boundaries, and has absolutely no respect for religious or cultural traditions.

This year at the annual Hajj to Mecca,  Four foreign pilgrims have died of swine flu, the Saudi Health Ministry announced on Saturday.

The Saudi Arabia Health Ministry  said none of the four foreign victims had been vaccinated against the H1N1 virus, as has been recommended by The Health Ministry.

An official statement released by the ministry said all had underlying health problems, including cancer and respiratory illness, AFP news agency reported.

Three of the victims died in Medina and one in Mecca.

http://www.arabnews.com/?page=1&section=0&article=128688&d=22&m=11&y=200Over

The BBC is reporting that….up to three million Muslims from around the world take part in the holy pilgrimage every year, but health officials have expressed fears that it could provide a breeding ground for the virus.

Authorities had tried to prepare for any outbreaks by installing thermal cameras at airports and sea terminals, deploying 15,000 additional health workers and ensuring hundreds of extra beds were available.

The Hajj (Arabic: حج‎ Ḥaǧǧ) is a pilgrimage to Mecca. It is currently the largest annual pilgrimage in the world,^[1] and is the fifth pillar of Islam, a moral obligation that must be carried out at least once in their lifetime by every able-bodied Muslim who can afford to do so. The Hajj is a demonstration of the solidarity of the Muslim people, and their submission to Allah (God).^[2] The pilgrimage occurs from the 7th to 13th day of Dhu al-Hijjah, the 12th month of the Islamic calendar. (http://en.wikipedia.org/wiki/Hajj)

The Health Minister has reported that there are 16 other people that have been diagnosed with swine flu and four remain in hospital in “critical condition”.

He added 12 others had recovered following treatment.

The Saudi government has recommended the elderly, pregnant women, people with chronic diseases and children skip the Hajj this year.

The Saudi government has said all pilgrims need a certificate of vaccination before they can apply for a visa.

This is real people, and this disease is spreading worldwide,at a rapid pace.

I encourage everyone to get a H1N1 swine flu shot as soon as you can.The reports of any side effects are exaggerated, and will cause millions of people to perish from the lack of the vaccine.

Any paranoia surrounding any alledged complications from the shot are totally unsubstantiated, and if those people out there insist on not receiving the vaccine, then we as a society should only expect more mounting mass casualties from the swine flu, as exhibited this weekend, unfortunately in Mecca.

If it can happen in Mecca, it can happen anywhere.

Please everyone, wash your hands, and go get the shot.

To follow the full story, click on the links for my sources below…

http://www.google.com/hostednews/ap/article/ALeqM5iDApMAhUln5jw-ffhzIZCh0I_-bgD9C41MJ00

http://news.bbc.co.uk/2/hi/middle_east/8372378.stm

http://www.saudiembassy.net/latest_news/news11210903.aspx

Fuel supply is expected to normalize in a week even as pump prices are likely to jump as oil firms prepare to recoup losses from rising global crude costs.

Pilipinas Shell Petroleum Corp. country chairman Edgar Chua said price adjustments would depend on market forces or on the movement of global crude costs.

Asked when supply would normalize, Chua said, “Maybe in a week’s time or so. Our estimate is it will be a week.”

“The amount to be recovered will be determined by the market. Assuming an adjustment will have to be made next week, it will also depend on what will happen in the market price this week. So that could adjust or reduce the amount,” Chua said.

“It’s a combination of recoveries plus the effect on the price this week, and the depreciation of the dollar against the peso. So it will be the market that will dictate this,” he added.

Shell, together with two other oil giants Chevron and Petron, raised their pump prices yesterday by P2 per liter for gasoline, P1.50 for diesel and 85 centavos for kerosene.

Earlier, small oil firms Eastern Petroleum, Flying V, and Phoenix Petroleum announced their own price hikes ranging from P1.50 to P2 per liter.

Shell launched yesterday a multimillion-peso calamity assistance program, which involves offering discounts for fuel and LPG purchase as well as greater support for social development programs in selected areas in Benguet, Baguio City, Pangasinan, Eastern Laguna, Rizal, Ilocos Norte, Ilocos Sur, Mountain Province, Isabela, Cainta, Marikina City, Malabon and Pasig City.

Under the program, Shell will give P2 per liter discount on diesel and P1.50 per liter on premium, unleaded and regular gasoline to drivers of public utility vehicles through its existing Shell “Pepeng Pasada” loyalty program until Dec. 31.

Shell will also extend P25-million worth of vocational scholarships to qualified dependents of jeepney drivers through the “Gas Mo Bukas Ko II” program.

P400-M losses

Chua also set Shell’s estimated losses from the recent price cap on petroleum at P400 million.

The price cap, stipulated in Executive Order 839, required oil companies to keep their prices at Oct. 15 levels.

President Arroyo lifted EO 839 over the weekend and replaced it with EO 845 requiring oil firms to give assistance to calamity stricken areas.

“Petron is one with the Filipino people in rebuilding the nation with its calamity discounts – reduced fuel prices available in areas badly hit by the recent typhoons,” Petron president Eric Recto said.

“Prices of automotive and motorcycle lubricants sold at our stations are also discounted. This is our way of keeping Petron’s commitment to serve you in every way we can,” he said.

Petron’s fuel discounts will last until Nov. 30 while oil discounts will be in effect until Dec. 31.

Flying V, for its part, has provided 30,000 relief packages amounting to P6 million to calamity areas.

Joey Cruz, Flying V spokesman, said they also assisted a United Nations world food program by refueling helicopters used in distribution activities in affected areas.

Price cap revival

President Arroyo will not hesitate to re-impose price caps on petroleum products in the event of abuse or unfair business practices by the oil companies.

Executive Secretary Eduardo Ermita said that despite the lifting of EO 839, the government has other “legal tools” to check unfair pricing practices.

He pointed out the joint task force of the Department of Justice and the Department of Energy “continue to exist within the flow and therefore can always be activated to check into the unreasonable increase of prices.”

“I know that the concern of the people is with the lifting of EO 839, we are back in essence to the Oil Deregulation Law. But don’t forget that even without EO 839, the government was not left without legitimate means of overseeing that there will be no abuse under the Oil Deregulation Law,” Ermita told a news briefing.

He recalled that even Justice Secretary Agnes Devanadera had warned oil companies that she would look into their books to see if there was justification for price increases.

He reminded the oil firms of their commitment not to increase their prices abruptly after the lifting of EO 839.

If the latest price hikes were found to be unjustified, “then nothing would prevent the President from resorting again to an EO that will return the effect of EO 839,” Ermita said.

He said Trade Secretary Peter Favila, who chairs the National Price Coordinating Council, has informed him that teams have been sent to key areas in the country to “check on the ill-effects of the increase of prices of oil and fuel on basic commodities.”

“If there is such an unreasonable increase (in the prices of basic goods), then definitely, the price teams of the DTI will also take notice and take measures to ensure that there will be no unreasonable increase in the prices of basic goods and commodities,” he said.

Ermita said the government has opted to put on hold an actual inventory of fuel in depots so that it would not be accused of exercising too much power.

“But we are not oblivious to these (reports of shortage),” he said.

The oil firms had been suspected of hoarding fuel when EO 839 was in effect.

http://www.philstar.com/Article.aspx?articleId=524687&publicationSubCategoryId=63

Small oil players Eastern Petroleum Corp., Unioil Petroleum, Flying V, and Phoenix Petroleum Philippines fired the first volley of oil price hikes yesterday after the lifting on Monday of the government-imposed price cap on petroleum products.

Eastern Petroleum raised the prices of diesel by P2 per liter effective today, and of unleaded gasoline and kerosene by P1.25 and P1.50, respectively.

Unioil Petroleum implemented a price increase of P1.50 per liter for all products while Flying V’s prices were P1.50 to P2 per liter higher depending on “trading areas.”

Phoenix raised the price of its diesel by P2 per liter and gasoline by P1.50.

President Arroyo’s lifting of Executive Order 839, which required petroleum players to maintain their prices at Oct. 15 levels, took effect last Monday.

Surprisingly, no price hikes were implemented on Monday although some retail stations did not sell fuel.

At the Senate yesterday, Energy Secretary Angelo Reyes got a scolding from senators for mishandling the current oil situation, causing panic and apprehension to the public.

Sen. Joker Arroyo said Reyes should be more circumspect next time in dealing with the crisis that arose from EO 839. Arroyo said Reyes “mishandled” the situation with his statement that there were only eight to 13 days’ supply of fuel left.

“All I am saying is… when the secretary of energy said there is supply of eight to 13 days, what gets into our heads is the storage facilities in Pandacan do not have any reserves,” Arroyo said. “You can imagine the repercussions.”

Reyes clarified that the statement attributed to him was based on feedback from one of the small oil players, and that this clarification was not highlighted by media.

Since the EO’s issuance on Oct. 23, global crude costs have been on an uptrend.

The average price of Dubai crude – the pricing benchmark used by oil refiners – has reached $78 per barrel this month as against last month’s $73 per barrel.

Contract prices of LPG rose to $660 per metric ton this month from $589 per MT in October.

Arnel Ty, LPG Marketers Association president, said they would likely increase their LPG prices by P3 per kilo next month.

Zero duty backed

Meanwhile, Pilipinas Shell Petroleum Corp. has expressed support for the reduction of the Most Favored Nation (MFN) rates for crude from three percent to zero percent.

“We support the proposal to reduce the duty rate from three to zero percent for crude oil, to include even those sourced from non-ASEAN countries, in order to ensure the continued viability of the petroleum refining industry in the Philippines,” Shell said in a position paper.

“Unequal tariff rates applied to crude sourced by Philippine refiners from non-ASEAN countries and imports from ASEAN countries will eventually result in the decimation of the local refinery business,” Shell said.

“There are more significant benefits to the government for maintaining a domestic or local refining business in the country. Beyond raw dollars-and-cents statistics of investments, there are related economic benefits of domestic refining,” it added.

More time for Shell

Meanwhile, Bureau of Customs commissioner Napoleon Morales said the bureau is open to allowing Shell to settle its back taxes of more than P7 billion by Dec. 31.

Morales told reporters that Shell president Ed Chua had reportedly called up to schedule a meeting tomorrow at 2 p.m.

Morales said he did not know why Chua requested for a meeting, but the request came days after the BOC sent a letter to Shell country tax manager Nigel Avila demanding the immediate payment of the back excise taxes that covered the importation of unleaded gasoline declared as Catalytic Crack Gasoline (CCG) from 2004 to 2009.

The CCG shipments reportedly landed at the Port of Batangas.

The agency has threatened to put on hold the release of future shipments of CCG unless the back taxes are paid.

“If they would offer a compromise then we would talk about it. Maybe I would give them until yearend to pay even on staggered basis because we really need the money,” Morales said.

The BOC has been encountering difficulty in meeting its monthly collection targets. BOC attributed the problem to lower import volume resulting from the global economic crisis.

Morales said the problem is evident in Manila’s bargain district of Divisoria despite the coming Christmas season.

“Before, when you go to Divisoria at this time it would be difficult to walk but now there is still some space to walk around,” he said. Divisoria is also famous – or notorious – for its vast supply of cheap smuggled goods.

For the period January to September this year, BOC’s collection shortfall has grown to P36 billion and the bureau has been trying to reduce the shortfall through planned auctions and more efficient collection.

http://www.philstar.com/Article.aspx?articleId=524423&publicationSubCategoryId=63

Japans cultural customary greeting is a sign of respect

The customs and regulations dealing with diplomatic formality, precedence, and etiquette is the definition of protocol.

The United States has had an upper executive level position that is as close to consulting and directing the specific details and directions that assist the president in issues governing how to greet the multitude of heads of states that visit the White House, as well as when the President travels internationally to foreign lands.

The name of the position is called the  Chief of Protocol of the United States, and Ambassador Capricia Penavic Marshall was sworn in as Chief of Protocol of the United States on August 3, 2009.

This is a summary of the duties of the Chief of Protocol as explained on their website….

Whether rolling out the red carpet for a King visiting the President at the White House, hosting a Prime Minister at the President’s guesthouse, traveling overseas with the President, credentialing a new foreign Ambassador, or planning events for the Secretary of State, the duties of the Office of the Chief of Protocol are many and varied.

 Led by Ambassador Marshall and Deputy Chiefs of Protocol Dennis Cheng and Lee Satterfield, the office is responsible for activities including the planning, hosting, and officiating of ceremonial events for visiting chiefs of state and heads of government, as well as coordinating logistics for the visits; managing Blair House, the President’s guesthouse; and overseeing all protocol matters for Presidential or Vice Presidential travel abroad, working alongside the White House.

http://www.state.gov/s/cpr/

All involved in the Office of Protocol are experts in this area. Protocol and the rules of decorum are critical in dealing within the international arena.

The pundits, neocon sycophants, and Republican haters of our President are not, yet they are spreading misinformation to those that are predisposed to believe their special form of sedition. The smart people are yet again preying on the mental weaknesses of the dumb people, and are spinning a simple greeting into something that it is not,treason.In fact their charges against our president is treasonous.

As usual they are up to their old devilish tricks.At least they are consistent,for what it is worth.

News photos of President Barack Obama bowing to Japan’s emperor have gotten the neocons panties in a twist here, who said the US leader should stand tall when representing America overseas, as if the rules of protocol in international politics are something that Joe the Plumber can figure out as easy as the rules of a street fight.

International politics is not a street fight, and like all other specialties, there are highly specialized techniques and rules to adhere to,and the interpretation of the greeting traditionally is based on what the meaning of the gesture is in the foreign land.

Obviously President Obama’s blackness makes him an untraditional president, but that is not of his doing; it is what the bigots in and around the Republican party, and independents of their ilk are making it.I blame Rupert Murdoch mainly, and call for his deportation.

Characterizing a bow, which in many cultures is a greeting, as an act of contrition and weakness, is disingenuous on the part of the critics,irresponsible, and racist. What is more disturbing is the fact that these elite political Republican pundits know this, and have done similar gestures in their political and social life, and have participated, rightly so, in greeting foreign leaders in international lands, in a manner that is customary in that foreign land without being subjected to any ignorant racist re-interpretations.

I am offended by the traitor Republican propagandist Bill Kristol’s characterization of a cultural ‘bow’ as a  sign of weakness….”I don’t know why President Obama thought that was appropriate. Maybe he thought it would play well in Japan. But it’s not appropriate for an American president to bow to a foreign one,” said conservative pundit William Kristol speaking on the Fox News Sunday program, adding that the gesture bespoke a United States that has become weak and overly deferential under Obama…

In Japan, and every country and culture that bowing, rather shaking ones hand, is a common sign of respect, and Bill Kristol, world traveler and scholar, knows this.I find this statement by Kristol to be a racist slur against the great culture of Japan, and I demand that he apologize and detract his slur. His father must be rolling in his grave…

I clearly understand Kristol to be calling  the entire Japanese culture and Emporer as being ”weak” because of their custom of using the cultural bow as a greeting rather than a handshake. It is very clear that he is making a racial slur against the Japanese culture, and is an epic low in the history of the Republican party, and the Kristol legacy.

In light of the worldwide Swine- flu pandemic, I find the gesture by President Obama to be not only respectful to the Emporer of Japan and the Japanese people, but also a high-profile example of how not to spread the flu virus.

I understand the Republicans want us all to get sick, and die quickly.That is why they do not support Universal Healthcare, President Obama , or bowing.

They are irresponsibly promoting the shaking of hands as a strong gesture, rather than the what it truly is, …a conduit to spread the H1N1 virus  around the world, unchecked.This is their latest strategy to thwart universal healthcare.

If we all stop shaking hands and strongly bow to each other when we greet our friends, then that would curtail the mounting casualties from this disease that Mr. Kristol and the Republicans want us all to die from.

Another conservative voice, Bill Bennett, said on CNN’s “State of the Union” program: “It’s ugly. I don’t want to see it.”

“We don’t defer to emperors. We don’t defer to kings or emperors. The president of the United States — this coupled with so many apologies from the United States — is just another thing,” said Bennett.

Some conservative critics juxtaposed the image of Obama with one of former US vice president Dick Cheney, who greeted the emperor in 2007 with a firm handshake but no bow.

Now, in the middle of a flu pandemic and a flu virus shortage,and the mounting casualties worldwide from the flu, whose example are you following…Dick Cheney’s or President Obama.

In order to be a true Republican, you must be willing to vote against your own self-interest, and strongly shake hands.

The Chief of Protocol for the United States specifically is directing the President to bow to world leaders, because it is a sign of respect in those countries, much like President W. Bush double cheek kiss on the face of the King of Saudi Arabia, and it is a way to promote a healthier custom in our own land.

The people actually in the driver’s seat running the country have to see the bigger picture, and they can not afford to act at their level in a base and uninformed manner.

Simple gestures around the world, mean different things from country to country, culture to culture. Informed people know that it is not relevant what the interpretation of a gesture means between two distinctly different cultures, and is not a fair or balanced measuring stick.

When informed people do this, their motivation can only be to stir up an insurrection in our land, by the uninformed citizens that believe them, and that is an act of treason.

I call for the department of justice to open an investigation into these charges against Bill Kristol and the other propagandist that spread this treason today about this Presidential bow, and I demand a retraction of the racist statement against the nation of Japan by the Republican party immediately.

I respectfully would like Kristol to explain his motivation for doing this against our country,or explain to the nation that he does not understand protocol.

If at this point he is not well versed in the rules of international protocol, then I would say that that would discredit his authority as a journalist, and his accomplishments as a journalist should not be recognized, and he should be diminished in the views of his peers.

He simply came to prominence on the lap of his daddy, who was the real talent in the family.Nepotism strikes again.

From the AFP comes this quote on the topic…. an unnamed, senior Obama administration official told the Politico.com news site that the president had simply been observing protocol.

“I think that those who try to politicize those things are just way, way, way off base,” the official told Politico.

“I don’t think anybody who was in Japan — who saw his speech and the reaction to it, certainly those who witnessed his bilateral meetings there — would say anything other than that he enhanced both the position and the status of the US, relative to Japan,” Politico wrote.

“It was a good, positive visit at an important time, because there’s a lot going on in Japan.”

Honoring a fellow world leader is and always will be a strong sign of respect, and has never been a sign of weakness, and I am embarrassed for all Americans that a political party of ours that is actively involved in governing our country, would launch such a vile a viscous slew of racial slurs against not only the Nation of Japan, but all Japanese people foreign and domestic.

It is truly a low point for our nation and for journalist and political pundits.

The Presidents example once again is the way to go.

The Republicans want to shake us all into our graves.

For more information on Bill Kristol and his father Irving Kristol, click on the links below, research them, and you tell me how likely it is that  they are not familiar with the rules of protocol. If he is, then what is doing with these treasonist statements….

http://en.wikipedia.org/wiki/Bill_Kristol

http://en.wikipedia.org/wiki/Irving_Kristol

Source…

http://www.google.com/hostednews/afp/article/ALeqM5gVGYMxyEpqIynr98qF-CA9ptFp6w

Bill Kristol hates Japanese culture and people,says they are weak...

Irving Kristol...Real talent who taught son to disrespect Japanese culture

 http://www.huffingtonpost.com/2009/04/09/obama-bow-to-saudis-cnn-r_n_185281.html

THE reality of the lag in supply pipelines whenever there is a snag in deliveries—whether deliberate, incidental or accidental—is running against expectations of motorists that they would now be able to buy fuel after the President lifted the price freeze on fuel on Monday.

An oil industry source, who asked for anonymity, said it may take up to early next month or at least two weeks before fuel supply in Metro Manila returns to normal. “The normalcy of supply does not happen overnight immediately after the price freeze is lifted.”

The abnormality of supply was the result of oil firms holding off purchasing fuel after their stocks had run low, in order to avoid selling them at a claimed loss because world petroleum prices had gone up.

Upon her arrival from Singapore where she attended the Asia-Pacific Economic Cooperation (Apec) Leaders’ Summit, the President signed on Sunday night Executive Order 845 lifting Executive Order 839, which required oil firms to temporarily freeze oil prices at October 15 levels.

“The Department of Energy and the Department of Justice and their Joint Task Force are hereby directed to implement the package of proposals submitted by the oil industry players consistent with their respective rules and regulations,” the lifting order, EO 845, stated.

Mrs. Arroyo was referring to a promise of the oil firms to give further aid to victims of Ondoy and Pepeng under their corporate responsibility programs that may include giving reduced fuel prices.

Justice Secretary Agnes Devanadera said the “consensus” reached on discounts to be provided to selected areas is “at least P2, but that is subject to market forces.”

EO 845 noted that the National Disaster Coordinating Council (NDCC) and the Department of Trade and Industry (DTI) have determined that, while the state of calamity subsists, the extreme emergency situation which served as the underlying reason for the issuance of EO 839 no longer exists.

The source said it may take another one to two weeks before supply in the entire Luzon normalizes. “Even if an oil importer places an order today, the fastest the supply can get to the country will be next week or even the week after.”

Fernando Martinez, chairman and chief executive of Eastern Petroleum Corp., said their supply is expected to normalize
within 15 days due to import constraints such as the 15 to 20 days of lead time.

Joey Cruz, spokesman of Flying V, also said his company has confirmed an order of fuel about three days ago even before the EO 839 was lifted. “We still have some fuel supply available that we would have to stretch up until the shipment we have confirmed three days ago comes in some time next week.”

As for whether they will increase prices, he said, “We will just reflect whatever the oil price is in the Mean of Platts Singapore (MOPS).”

In a statement, Eric Recto, Petron president, said his company welcomes the lifting of EO 839. He added they will offer price discounts on gasoline, diesel, kerosene, and cooking gas (LPG) in identified typhoon ravaged areas until the end of November. “We will also freeze the prices of automotive and motorcycle lubricants sold at our service stations in those areas until December 31.”

The “targeted and focused calamity assistance program” will be implemented in Benguet, Baguio City, Pangasinan, Eastern Laguna, Rizal, Ilocos Norte, Ilocos Sur, Mountain Province, Isabela, Cainta, Marikina City, Malabon, and Pasig City.

Chevron Philippines Inc (CPI) also welcomed EO 845 but reserved comment until they are able to study the new statute.

Mark Quebral, CPI manager for policy, government and public affairs, said, “We understand that there a number of provisions in EO 845 that follow the recommendations made by Energy Secretary Angelo Reyes which formed the bases for the President to lift EO 839. We want to see and review how these were incorporated into the new EO first so we can determine how we will proceed from there.”

He was apparently referring to the reported promise of the oil firms to continue providing aid in some form or another to the typhoon victims in the targeted areas.

Quebral also cautioned that “supply and price distortions that were created in the course of the implementation of EO 839 are expected to still prevail over a period of time as the market adjusts slowly and returns to normal market driven conditions.”

Deputy Presidential Spokesman Gary Olivar said in a news briefing, “We don’t expect any major inflationary problem.”

What his basis for this belief he did not say except that, “I don’t think the lifting of price control would have that big an effect on inflation because the lifting is at the level of a presidential EO and the basic commodities is simply at the level of a departmental order of DTI.”

He added, “We don’t know if once DTI lifts ceilings, there may be commodities that may be in temporary short supply because inventories would be reacting. But I think those will just be temporary adjustments. I think by Christmas, which is still more than a month away, our retailers and wholesalers would be in position to answer the demand of our Christmas shoppers.”

Olivar said Malacañang is studying a National Economic and Development Authority (Neda) proposal to expand the joint DOE-DOJ task force to include the DTI and Neda.

Lakas-Kampi-CMD Rep. Mikey Arroyo of Pampanga meanwhile hit on reported hoarding of fuel. “This is so irritating. They have been doing this since time immemorial. This has to be stopped. I am exercising oversight function of the House Energy Committee to monitor this exploitative practice of the oil companies and gas stations. I have also called on the Department of Energy and the Department of Trade and Industry check on reports of incidents of hoarding.”

Should the oil firms continue with their practice. Arroyo said, “In my capacity as the House energy chairman, I will be forced to recommend the reimplementation of the oil price freeze.”

http://www.businessmirror.com.ph/home/top-news/18616-fuel-supply-still-abnormal.html

MANILA, Philippines – Following the lifting of Executive Order 839, oil companies are waiting to see which one will make the first move to increase pump prices.

Independent Philippine Petroleum Companies Association (IPPCA) chairman Fernando Martinez, who also owns Eastern Petroleum Corp., said the firm was not yet planning to increase prices.

President Arroyo signed last Sunday Executive Order 845, officially lifting the price cap on petroleum products even as Palace officials warned oil firms yesterday that the government and the public would monitor their business operations.

Mrs. Arroyo issued the EO to revoke EO 839 that froze pump prices to their Oct. 15 levels to help the people recover from the destruction caused by recent devastating typhoons.

Asked if Eastern would adjust prices after EO 839 was lifted, Martinez replied, “Not yet.”

Unioil Philippines Inc. also said, “We did not implement any adjustment in our pump prices. Our pump prices are still the same.”

Petron Corp. public affairs manager Virginia Ruivivar said the country’s largest oil refiner is also not keen on making the first move.

“I do not think we will move today (Nov. 16). Otherwise, I will get an advice from the management,” she said.

Ruivivar stressed that normally, Petron has just been responding to competitive pressures.

Just in case, there would be price adjustments, Ruivivar assured the public that it would be done on a staggered basis.

Martinez said they might raise prices ranging from P1 to P1.50 per liter on a weekly basis.

President Arroyo had issued EO 839 directing oil companies to keep their prices at Oct. 15 levels for the duration of the state of calamity over Luzon after the devastation caused by tropical storm “Ondoy” and typhoon “Pepeng.”

The order drew sharp criticism from the oil firms as well as the various business groups because of the indefinite period in which the price freeze would be in place.

Oil industry sources disclosed yesterday that some oil companies are forced to close several service stations due to losses in revenues caused by the implementation of EO 839 that mandated a freeze of pump prices in Luzon following the devastation of the recent typhoons.

Sources said several stations in Metro Manila have decided to close because of the dealers’ inability to absorb the losses brought about by EO 839.

The President said she removed the price cap based upon the recommendation of the joint Department of Energy (DOE)-Department of Justice (DOJ) Task Force and the adoption of measures proposed by oil industry players “for a more targeted and focused calamity assistance program in selected areas in Benguet, Baguio City, Pangasinan, eastern Laguna, Rizal, Ilocos Norte, Ilocos Sur, Mountain Province, Isabela, Cainta, Marikina City, Malabon and Pasig City.”

The President specifically named Petron Corp. and Seaoil as among the oil firms that would implement discounts and pro-poor projects in the areas still recovering from the disasters.

She tasked the DOE and the DOJ to help in implementing the package of proposals of the oil firms.

Presidential economic spokesman Gary Olivar and deputy presidential spokesman Anthony Golez expressed hopes that the oil firms would keep the promises they made in exchange for lifting the EO, including implementing discounts, staggering their increases, and putting in more investments.

“We hope they keep their vows so it will not be shocking to our countrymen,” Golez said.

Olivar said the issuance of EO 839 was justified “and showed that we really should be vigilant or they should exercise more self-control themselves.”

He said the Bureau of Customs had given Shell a deadline to pay over P7.3 billion in unpaid taxes for the importation of unleaded gasoline.

“These (unpaid taxes) should be a reminder to them (oil companies) that even as they continue to pursue their profit maximization activities… they should also be aware at all times that the public interest will be actively and aggressively protected by this President,” Olivar said.

“This is the kind of thing, I mean, it’s okay in general postpone taxes but to actually avoid taxes that’s illegal. That’s exactly what I mean by exploiting the situation,” he said.

Justice Secretary Agnes Devanadera said Malacañang would count on the commitment made by the oil firms to implement discounts.

Devanadera said that there is no law binding the oil companies to give discounts now that the government has returned to its oil deregulation policy even if relief packages are included in EO 845 that lifted the price freeze.

“We welcome the lifting of EO 839, and as we have committed to the government, we are prepared to implement a program to assist our countrymen in areas that were directly affected by the recent calamities. We will offer price discounts on gasoline, diesel, kerosene and cooking gas (LPG) in identified areas until the end of November,” said Petron president Eric Recto.

Recto said the firm would also freeze the prices of automotive and motorcycle lubricants until Dec. 31.

Shell vice president for communications Roberto Kanapi said the firm would issue an update on any price adjustment today.

Shell country chairman Edgar Chua welcomed the lifting of EO 839. “This sends a positive signal to both the local and international business communities,” Chua said.

He also vowed to cooperate with the government to ensure an adequate supply of oil in the country.

Meanwhile, Isabela Rep. Rodolfo Albano III accused oil companies yesterday of resorting to profiteering by increasing pump prices even before the President could lift the oil price freeze.

He said Petron, Shell and Chevron (formerly Caltex) gasoline stations in Isabela have already increased gasoline prices ranging from P4 to P5 per liter.

“In some towns, where there are only a few stations that still sell oil products, the increase is as much as P8 per liter,” he said.

Albano said oil companies and their dealers are taking advantage of an artificial shortage they themselves created and making a killing at the expense of the public.

He urged the Department of Energy and the Department of Justice to monitor price increases of petroleum products especially in the provinces.

Albano said that along Commonwealth Avenue and the Batasan-San Mateo Road in Quezon City, gasoline stations limited the sale of gasoline to P1,000 worth of gas yesterday morning, and by noontime the same stations claimed they had run out of diesel.

He said it is possible that oil firms are hoarding their products in anticipation of higher prices.

In a related development, former economic planning secretary Ralph Recto said his assertion that local oil products are overpriced by as much as P8 per liter is not baseless.

In an email to reporters, Recto said the technical staff of the National Economic and Development Authority (NEDA) made the computation.

“My contention is not without basis. The NEDA technical staff used a method of comparison and computation to arrive at an estimate of how much fuel prices should be in April of this year,” he said.

He pointed out that at the time, oil companies were selling gasoline by as much as P40.85 per liter, P8 more than the estimated gasoline price of P32 based on NEDA computations.

Lawmakers warn oil firms

Speaker Prospero Nograles warned erring oil companies not to create an artificial shortage of petroleum products or the government could take over the oil facilities in a worst-case scenario.

In a text message from Las Vegas, Nograles said a government takeover is logical and necessary if the shortage – perceived by many as artificial – gets worse, amid the government’s decision to lift EO 839 that sets an oil price cap.

“That (government takeover) is perfectly legal,” he told The STAR.

Nograles also hinted that it would be best if somebody who could do the job better would replace Energy Secretary Angelo Reyes, who has been accused of acting as a lawyer of oil firms.

“This business scheme (artificial shortage) can stop if our energy officials will only run after them. The remedy is simple. The government should put the people who can really handle the job,” Nograles proposed, without elaborating.

“Secretary Angie (Reyes) could have at least called up these oil companies and appealed for compassion. Millions of people have lost their homes and are largely dependent on whatever support that is given to them by others,” he said, referring to typhoons Ondoy and Pepeng.

“This makes me wonder if the DOE is still part of the government,” Nograles said.

Pampanga Rep. Juan Miguel “Mikey” Arroyo, chairman of the House committee on energy, observed the pattern wherein oil companies have been hoarding petroleum products on the eve of an impending oil price hike.

“The practice of hoarding every time there is an impending oil price increase is becoming so irritating. This has to be stopped. I am exercising the oversight function of the House energy committee to monitor this exploitative practice of oil companies,” he said.

He called on the DOE and the Department of Trade and Industry to check on reports of incidents of hoarding.

Anak Mindanao Rep. Mujiv Hataman said a House probe might be necessary to find out if oil companies are just trying to fool the public into believing that there is indeed a shortage, even if there is none.

http://www.philstar.com/Article.aspx?articleId=524152&publicationSubCategoryId=63

Oil companies will likely raise prices by P4.50 a liter in three installments of P1.50 each in as many weeks to reflect the increase in cost of imported products from October 15, the prize freeze date imposed by Executive Order 839, industry sources said yesterday.

The price cap on oil products as well as other basic commodities is lifted effective today.

A staggered increase is certain, Eastern Petroleum CEO Fernando Martinez, chairman of the Independent Philippine Petroleum Companies Association, said.

“We can’t increase the prices in one week. We may do it in three tranches so the impact to consumers will be lessened. As to how much the first increase in price on Monday will depend on competitive forces,” he said.

“We can’t decide yet until after we have been able to reflect the true costs of petroleum products. It’s very difficult to say at this time,” he said.

Flying V chairman Ramon Villavicencio said his company is prepared to stagger the increase over a three-week period of around P1.50 per liter per week.

Malacanang said it is holding the oil companies to their commitment to stagger the price increases, give discount to the transport sector and provide assistance to typhoon victims.

Gary Olivar, deputy presidential spokesman, said President Arroyo will not hesitate to re-impose the price freeze in case of abuse by the oil companies.

“I am sure with what happened, things have become clearer for the oil industry and the public and now they understand that the President has the political will to make decisions for the benefit of the people,” he added.

Last Friday, Arroyo also said there should not be any fare increase during the next six months.

But she said if world oil prices go above $82 per barrel, another dialogue would be convened to review the price agreement.

“(The lifting) sends a positive signal to both the local and international business communities,” Edgar Chua, Shell country chairman and president, said.

“With the lifting of the EO 839, market competition can now prevail, which is the essence of the Oil Deregulation Law. We look forward to a continuing stable policy environment in which to conduct business successfully,” he added.

Shell said that it will continue to work closely with the Department of Energy to ensure a safe and secure supply of petroleum products at competitive prices.

http://www.malaya.com.ph/11162009/busi3.html

There is no reason for fuel pump prices to increase with the scrapping of Executive Order 839 that had implemented a price cap on oil products in Luzon, officials pointed out.

An official of the Bangko Sentral ng Pilipinas (BSP) said the movement of oil prices in the world market and peso as against the US dollar does not justify an increase in pump prices.

The Cabinet-level Development Budget Coordination Committee (DBCC) has pegged the projected oil price at $65 to $70 per barrel and the foreign exchange at P47 to $1 this year.

The BSP official pointed out the average price of oil in the world market is still within the projected level while the exchange rate is also within the projected band.

President Arroyo issued EO 839 freezing fuel prices at Oct. 15 levels for an indefinite period of time while a state of calamity or national emergency is prevailing in Luzon that had been battered by tropical storms “Ondoy” and “Pepeng” in a week’s span.

The order invoked the Oil Deregulation Law that allows the Department of Energy to take over or direct the operations of the industry in times of national emergency or when required by public interest.

However, the order drew strong criticisms from various sectors, including business organizations.

Major oil companies led by Petron Corp., Pilipinas Shell and Chevron strongly opposed the imposition of price cap on oil products and warned of possible supply shortage.

BSP Deputy Gov. Diwa Guinigundo also warned that imposing price ceilings on oil products and basic commodities could lead to market distortions.

The public pressure forced Malacañang to revoke the order effective today following the recommendation from the task force of departments Justice and Energy that reviewed the price control order.

http://www.philstar.com/Article.aspx?articleId=523821&publicationSubCategoryId=63

The row over whether the International Energy Agency has or has not nurdled its oil data to (a) prevent financial market panic or (b) appease the Americans or ‘(c) neither of the above, is interesting but a bit of a sideshow. What’s more interesting is how fast the notion that ‘peak oil’ is imminent has moved from being a contested minority view to being mainstream.

The IEA’s been stung by suggestions that its research lacks independence, and has taken the unusual step of publishing material normally only available to subscribers (opens in pdf) to try to demonstrate it. But the assumptions embedded in its projections tell their own story. By 2030, it suggests, the majority of world production will come from currently undeveloped (or not yet discovered) oilfields, even though the rate of discovery is falling and it takes typically 30 years to move from discovery to peak production. And unconventionals – the environmentally disastrous tar sands – grow, a lot.

The IEA’s view is not shared by other recent reviews of energy outcomes. The Oil Crunch, published this time last year and produced by a group which included a cross-section of British businesses, concluded that the problem of declining oil supply could hit Britain as early as 201, with serious consequences for the economy. (News story here, report downloads in pdf here).

Just a month ago the NGO Global Witness produced a report – “Heads in the Sand” – based on official data which concuded that by 2015 there could be a substantial daily shortfall in oil supplies. It summarises the argument as follows: the size of oil discoveries has been grending fownwards for forty years, and production has exceeded discovery since 1984; 17 of the world’s 20 largest fields are producing at below their historical highest levels; conventional oil production failed to grow between 2005 and 2008, despite high demand and high prices; and the IEA projects a drop in production from existing flelds of almost 50%. To hit its 2030 projection will require new capacity which is six times the current Saudi production levels to be develped and brought onstream. [Update: A thorough but high level analysis of the background data and the implications for the global economy has been posted at The Oil Drum since I wrote this blog post.]

Looking for miracles

It’s perhaps not surprising thatg investment banker Matthew Simmons, an energy sceptic, had this to say about the IEA’s general projections:

What the new IEA leadership is warning is that declines in mature super giant fields will make it necessary to add the equivalent of four new Saudi Arabias over the next two decades just to keep demand flat. They intentionally avoided saying “obviously, this is impossible.”

The IEA was set up in the wake of the 1970s OPEC crisis to provide the leading energy consuming nations with reliable information about oil reserves, production, and consumption, and to advise on policy. Critics have long accused it of being captured by oil industry assumptions, and closed to critiques of these. In turn, its worldview – generally repeating industry prognoses that there would be no pressure on oil supplies until 2030 – has over-influenced policy-makers, especially in the UK, which is one of the reasons why Britain’s energy policy is in poor shape.

The current production forecasts remind me of Pierre Wack’s story of Shell’s ‘preferred’ 1970s oil scenario, the one that most chimed with the company’s worldview. It would, Wack observed, take ‘Three Miracles’ to come about. Miracles will also be required for the IEA’s projections to come about in practice, and indeed much the same mirales – new reserves rapidly found and brought into production, large suppliers willing to produce at high levels, and no problems on the supply side.

The global energy unit at Uppsala University in Sweden last week produced its own 2030 Energy Outlook, in which it reckoned that  global production in 2030 was more likely to be 75 million barrels per day than the IEA’s 105 mpd (thanks to the Real World Economics Review blog for the reference; there’s also a handy couple of charts which show their competing production assumptions). As the Uppsala group says in its conclusion, “All our projections imply that the world oil production by 2030 will be lower than today.” This is one of the reasons why Kjell Aleklett, director of the Global Energy, unit has described the IEA’s report as a “political document”. But policy – certainly not in the medium-to-long-term, is not best-served by politicised research; in futures terms, such behaviour simply creates blindspots.

Personal correspondence with Phil regarding how oil speculation affects oil prices.

Phil to Ilene:

This is a complicated issue as it’s not just the act of creating a contract.

Let’s say there are 100,000 barrels of oil in the world and 10 are sold each day and they are shipped from various places in various amounts but generally there are, at any given time, 30 days of oil at sea (300 barrels).  If I am taking straight delivery, I would contract with the producers to deliver me 1 barrel of oil per day for a year or 5 years or whatever for $50 a barrel.  My interest is to have a steady supply and the producers interest is to have a steady demand.  He wants to charge as much as possible, I want to pay as little as possible.

Enter the speculators.  Rather than me (the actual user) haggling with the producer directly (as is done in most business transactions), the speculator steps in and offers to buy as much oil as the guy can produce for $40.  I can’t do that because I only need one barrel a day but if the guy can make 1.3 or 1.6 barrels a day or he can add a new pump and make 2 barrels a day, knowing he has a buyer at $40, he will be thrilled (assuming the profits work selling 2Bpd at $80 vs 1Bpd at $50).
In a perfect world, the speculator is simply taking on some risk and will make the difference between the $40 they are paying and the $50 I am willing to pay and they will sell the excess for $40-50 and make a nice overall profit.

But then the speculators get greedy.  They know I NEED 1 barrel per day and perhaps there was some seasonality to pricing or natural fluctuation but all the speculator has to do is wait for the price to rise and then hold it there.  If supply is uneven, they can divert some to storage.  They are still buying it, creating demand but they are not delivering it so there is suddenly a “shortage” where none existed before.   As they accumulate more barrels in storage (say 100) they realize that getting the price up to $60 makes them not only $10 a day more per barrel they sell me, but it increases their “wealth” by 20% as the 100 barrels they have in storage are now valued at $60 – even though they are actually unwanted barrels that have been manipulated out of circulation.

Given this situation, it is always in the interest of the speculator to encourage demand, even when supply will fall behind.  They can encourage highways to be built, block public transportation, fund the use of plastics for everything, get government to stockpile oil, discourage clean air laws and block alternative energy legislation and encourage auto companies to make gas guzzling cars and extend credit to anyone who wants to buy a cargo truck to take the kids to the grocery store.

It is also in the interest of the speculators to curtail supply, which also boosts the value of what they have.  They can do this by teaching the producers to form a cartel to control prices, they can downgrade refiners and get clean air legislation passed so none can be built, they can refuse to lend money for oil exploration or give money to groups who are against drilling or use their PR departments to vilify governments who are able to supply oil but are not under their thumb.  They may even start a war or two to destroy existing supplies and knock out competitors’ competing operations.

Another fun thing speculators can do is to get other people to speculate.  Once you get more and more people speculating (and ETFs are great for this) then more and more product is pulled off the free market and into the hands of speculators, who end up hoarding something they actually have no use for, except as an investment.  You can goose speculation all kinds of ways – by making people think they can get rich, by making up stories of shortages, by manipulating price spikes – you name it.

On top of all that, you can manipulate the contracts on the “free” market.  All you have to do is get a friend (me) to agree to jack up the price with you.  You and I have 100 barrels of oil in storage and another 30 barrels in ships on the way and contracts for more years at $40 a barrel (say 750 barrels).  We have a few stories printed in the news about peak oil and demand and whatever nonsense and then I offer a barrel (1 of 10 sold that day) for $61 on the open market and you buy it.  Then you offer a barrel (10% of a normal day’s trading) at $62 and I buy it.  Then I offer the barrel for $63 and you buy it and then you offer the barrel for $64 and I buy it.  What has happened?  You and I have spiked the volume of trading by 40% for the day and ramped the price up 6.5% by trading the same barrel back and forth 4 times.

You paid $61, I paid $62 (+1 to you), you pay $63 (+1 to you) and I pay $64 (+1 to you) so the whole scam costs me $1 but we have raised the “value” of our 800 barrels of oil by $4 ($3,200), not a bad ROI for a day’s work.

So that’s the short version of how it works.  It’s kind of like the 4 blind men who feel an elephant and each guy thinks it’s something else because the part he’s feeling is so different from the others – unless you step back and get the whole picture, it’s hard to make sense of it but once you do get the big picture, the parts become obvious….

See also: Goldman’s Global Oil Scam Passes the 50 Madoff Mark!

President Arroyo is set to lift the price caps on petroleum products and basic goods in Luzon after oil firms and traders vowed to give consumers a reprieve from high prices, Trade Secretary Peter Favila said yesterday.

Press Secretary Cerge Remonde told reporters last night Mrs. Arroyo will act on the matter upon her return from the Asia-Pacific Economic Cooperation Summit in Singapore on Sunday.

Speaking to The STAR, Favila said he proposed the move to Mrs. Arroyo following separate meetings with representatives of oil firms, and manufacturers and distributors of various products.

Mrs. Arroyo needs to issue a new executive order to revoke an earlier directive freezing the prices of petroleum products, he added.

Favila said price controls on basic goods can be removed even if the state of calamity remains over Luzon.

“The people, businesses, and the government are still coping with the calamities that hit us so we need to continue to help each other,” he said.

Favila said the lifting of the price ceilings could be announced in the coming days as Executive Secretary Eduardo Ermita has to draft a new executive order.

The National Price Coordinating Council, which he chairs, met for three hours on Wednesday with representatives of various industries, he added.

Favila said he also joined the meeting between the government task force and oil companies upon the invitation of Justice Secretary Agnes Devanadera.

The oil firms as well as manufacturers and traders agreed to his proposal to reduce prices in areas that continue to suffer from the effects of the storms, he added.

Favila said the lifting of the price freeze on petroleum products and basic goods would allow the business sector to recover reported losses while giving relief to those hardest hit by the typhoons.

The oil firms promised to finalize the details of selective pricing, he added.

Favila said the oil companies, manufacturers and traders are fully aware that the government can again impose price controls.

“There will be no hoarding and there will be no profiteering,” he said.

Devanadera said last night the joint task force on the Oil Deregulation Law comprised of the justice and energy departments has recommended to Mrs. Arroyo to lift the freeze on fuel prices in Luzon following consultations with oil firms.

Salceda urges lifting of price freeze

Albay Gov. Joey Salceda urged yesterday the recall of Executive Order 839 and suggested a dialogue with business, labor and the transport sector to clear the air.

“To the business sector, the government negotiator must assure investors that price controls are a temporary response to a calamity and that the private sector is a partner, not the enemy of or a nuisance to, the state in national development and an ally in disaster response,” he said.

“To the labor and transport sectors, the government must commit to assisting affected sectors via direct subsidies and a more expansive and inclusive growth in productivity.”

Salceda said short- to medium-term subsidy mechanisms should include oil price discounts to ensure no increase in fares in the next six months provided international pump prices do not exceed $82 per barrel.

In turn, the government must commit to increase the livelihood program for wives of drivers and operators from P500 million to P1 billion, as well as accelerate conditional cash transfers to one million families from 700,000, he added.

On the other hand, Sen. Manuel Roxas said the administration should have made sure that there was enough supply before Mrs. Arroyo issued EO 839 so that the public would not be at the mercy of oil companies.

Roxas reiterated the need for the energy department to scrutinize the books of oil companies.

NEDA chief: No oil overprice

Acting National Economic and Development Authority director general Augusto Santos dismissed as baseless the claim of his predecessor Ralph Recto that prices of petroleum products were overpriced by at least P8.

Reporting to Mrs. Arroyo, Santos said NEDA does not have an economic model or formula to determine pump prices, the same argument of Energy Secretary Angelo Reyes.

“To be able to determine what the pump prices should be, ideally we need to know the revenues, costs and required or desired returns on investments of the oil firms which are data that may not be readily provided by the oil firms by virtue of the Oil Deregulation Law,” he said.

“Under this law, it is only the Department of Energy that can possibly access such data.”

Santos said Recto could not have possibly had any access to the data and merely made “a simple interpolation or extrapolation” in estimating pump prices based on the Dubai crude prices, foreign exchange and actual pump prices.

Joker: Close Pandacan depot

Sen. Joker Arroyo urged the government yesterday to consider closing down the Pandacan oil depot in Manila if oil firms continue to defy Mrs. Arroyo’s freeze order.

“You know the government must just face this problem head-on with the oil giants. Because the oil supply has a military and a national security component,” he said. – With Edu Punay, Celso Amo, Donnabelle Gatdula, Christina Mendez

http://www.philstar.com/Article.aspx?articleId=522901&publicationSubCategoryId=63

Inflation concerns have been put on the backburner over the past year as the credit crisis intensified and inflation expectations declined – allowing global central bankers and political leaders to aggressively address more pressing deflationary impulses. In response to the combination of last week’s Fed announcement that its zero-interest rate policy would continue “for an extended period of time,” and the weekend’s G20 meeting in which policy makers renewed their commitment to stimulus initiatives, investors drove the gold price to all-time highs. There is a growing contingent of inflation hawks that view the colossal efforts to avoid global deflation through massive increases in the money supply by the world’s central bankers as destined to lay the foundation for a period of widespread and intractable inflation.

In spite of a strong recovery in asset prices, a contraction of credit spreads and a marked drop in volatility, the Bank of England disclosed on Friday that it was increasing the money supply by an additional 25 billion GBP ($41.9 billion USD) after the UK economy posted an additional 0.4% decline for the third quarter. Like the Fed, the Bank of England cited continuing spare production capacity as one of the factors that prompted the action.

The aggressive expansionary policies of central bankers has caused investors’ risk appetites to increase as the perception that governments will be there to step in at the first sign of any turbulence becomes entrenched. The inflation in asset prices is partly a result of investors being pushed out on the risk curve due to the fact that rates of return on capital in traditional savings accounts has been driven to zero. Although holders of risk assets have responded to these moves by driving all assets classes higher, the increase in the gold price portends an inflationary outcome as a result of the easy money policies being undertaken.

Although inflation is more popularly defined as an increase in the price levels of goods and services, it is technically a decline in the value of money caused by an increase in the money supply.  An increase in the price of goods and services that is caused by a fundamental shift in supply and demand factors – say, an increase in oil prices due to the increase in aggregate demand caused by economic development in emerging economies – is not an example of inflation. However, an increase in the money supply caused by central bank policy – such as the Fed’s direct purchase of Treasury bonds or open-market purchases of mortgage-backed securities – fits the classical definition of monetary inflation. Price increases usually attend inflation because as the supply of paper money increases – without a commensurate increase in production – the excess demand manifested by a greater money supply causes the price of goods and services to rise. More currency chasing fewer goods will eventually lead to price inflation.

Although the adjusted monetary base in the United States has been growing at an increasing rate since the dollar was taken off the gold standard, it has grown by more in the last 14 months than it has in the previous 80 years to $1.96 trillion. In percentage terms, growth since August of 2008 is a staggering 125%. The next-highest period of monetary growth took place during the depression and World War II – but year-over-year growth never exceeded 28%.

Inflation doves insist that deflation still remains the primary threat to the global financial system and discount any notion of inflation, saying that there has been no credible sign or threat of an increase in prices in any of the data released over the past year despite the massive injections of liquidity undertaken by the world’s central banks. The flaw in this conclusion is that while inflation has not yet been manifested in price levels, the seeds have already been sown, awaiting germination in the form of nascent economic recovery. When recovery begins, the liquidity that now sits dormant as reserves in the banking system will flow as banks begin to redeploy reserves and increase lending. In the aggregate, this lending activity will increase monetary velocity, the factor currently missing in the inflation equation. Central banks must precisely gauge this activity, and divine the correct moment and apply the exact pressure required on the stimulus brake or inflation will sprout like weeds after a drenching rain.

Even without hard evidence of inflation, policy makers must tread cautiously. It is inflation expectations – as much as inflation itself – that central bankers must carefully manage. The threat of inflation is almost as powerful as the phenomenon itself. Business decisions become more difficult to make without stable money, hence investment often declines. Inflation distorts the economy. It causes capital to be misallocated and it destroys purchasing power. Inflation and inflationary expectations can lead to hoarding out of concern that purchases must be made now because prices will be higher in the future. It is this terrain of threatened inflation that gold investors have been eying as they push the gold price to new record highs.

According to industry research firm IBISWorld,  over the five years to 2008, the price of gold has increased at an annualized rate of 19.1%. The predominant reason for the high level of growth is attributed to higher demand for gold as investors attempted to hedge themselves against inflation or a possible depreciation in the US dollar. Also contributing to the upward pressure on prices over the last five years was the increase in gold jewelry consumption, particularly as disposable incomes rise in many parts of Asia.

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