Oil Price Taking Center Stage in Politics and Markets

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Soaring oil prices has taken center stage in most countries headlines recently, even partly causing the collapse of Haiti government.
Some countries are beginning to react as it is becoming clear that high oil prices are here to stay.
Both Indonesia and Malaysia, which is a net oil exporter, announced in the same week that they are reducing their oil subsidy.
However, both governments came under tremendous pressure from its people and opposition politicians.
Is that necessary, or are there better solutions that will affect the people less? "We were not expecting such a bold move from Malaysia's politically weakened Prime Minister Abdullah, but we respect that move.
It makes no sense for the government to continue to give one third of its hard earn money to oil subsidy.
Reducing oil subsidy but returning the subsidy in terms of cash and tax rebates will allow people to decide for themselves how they wish to utilize these subsides," said Raymond Chua, Principal Advisor of Energie Capital, a Singapore investment advisory firm.
"Money saved can than be channeled to investments that will enhance growth, that is the only way to ride the inflation.
" "Take China which is the manufacturing factory of the world.
By continuing to subsidize the fuel prices, it is in fact subsidizing the world's consumers as it products are produced at artificially low price.
This is costly to any governments.
At some point, they have to stop.
It may be wise to continue limited oil subsidy, for instance for public transport, but the most efficient way is to give cash rebates while the market work its way out.
" The direction of the stock market too is heavily related to oil prices.
On 7 June, when oil price retreated to USD122 a barrel from a high of USD134, Dow Jones soared by 200 points.
However, Dow Jones promptly crashed the next day by almost 400 points when oil price unexpectedly set a new high of USD139.
High oil price appears to have taken center stage from the sub-prime issue.
"It is understandably why the market is taking the cue from oil prices.
The sub-prime issue is one that affects market liquidity, consumer confidence and of course, the American property market.
It is a major issue, but it is pretty contained and most governments do have the resources to act somehow.
However, most governments are helpless against high oil prices, whether it is speculator driven or otherwise.
Companies and similarly, countries that are best able to adjust to high oil price will emerge stronger in the world economy.
The market is now looking for new winners and losers in the high oil price regime; and this was what's been making us all busy in Energie Capital for the past months!" quipped Raymond.
The world has to accept that it's finally payback time for years of abusive use of fossil fuels and under investment on alternative energy.
International Energy Agency that it would cost the world USD13 - USD50 trillion over the next 40 years to reduce the demand by half.
We can only hope that more governments will show political will to bite the bullet now, and start to think for the long term benefit of their population.
As for those looking at investing in the markets, expect continual volatility until the direction of the oil price shows better clarity.
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