March 27, 2017

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Authors Posts by Ryan Ong

Ryan Ong

Ryan Ong
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by Ryan Ong

I’VE had a driver’s license for 12 years, but the only thing I’m usually allowed to drive is people up the wall. I think that disaster movie, The Day After Tomorrow, was secretly inspired by watching my attempts to parallel park. To prepare for the risk of meeting people like me on the road, there are No Claim Discount (NCD) protectors. But are they worth the price?

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by Ryan Ong

PRIVATE equity likes to disguise itself as the “boring” part of the finance industry, in much the same way Satan disguises himself as a little girl in those exorcist movies. One minute a company is donating money to Greenpeace, and the next it’s buying unwanted orphans from third world countries to club baby seals to death. That’s when you know a private equity firm got involved.

Still, despite combining the social skills of an accountant’s corpse with the ethics of Joseph Stalin, private equity firms are considered respectable institutions:

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by Ryan Ong

COMMUNISTS espousing free trade is about as likely as Lawrence Khong leading a gay pride parade, but that’s precisely what we’ve seen this year. But were we shocked? Not at all – after Brexit and the Trump election, we have officially run out of shock capacity.

If a chimpanzee assaulted Parliament and declared itself high king in sign language, we’d just sigh and ask if it’s revising the CPF draw down date. So we can be forgiven for overlooking what amounts to be a seismic shift, in which China and America are switching places.

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by Ryan Ong

TIME to talk about what Singaporeans stress about, argue about and in some cases, exist for: the almighty dollar. This week the Singapore dollar fell to a seven year low against the US dollar, which is why my holiday plans in Miami now involve tents and skilled foraging. But what’s actually causing this and what are the implications? It’s always good to know because statistically, some of you reading this will be rich some day. Then, you can remember who got you there and that I only need a very small yacht to be happy:

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by Ryan Ong

MANY of my most memorable experiences overseas come from crime. Because I’m chubby, travel alone, and have the combat prowess of a pregnant yak, criminals tend to pick me out of a herd.

“There,” they say to their friends, “is a man who won’t fight or run, because he knows he’ll just end up tired and broke”. Since my pain provides significant amusement, I’ll now rate the following cities in terms of quality of robbery.

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by Ryan Ong

THERE are two main reasons why Singaporeans buy property abroad. The first is as an escape plan. At the rate our cost of living rises, McDonald’s looks like a five-star restaurant to some retirees.

The other reason is good old Asian values. We have a land ownership / property bias, and we want to own a house somewhere; anywhere. Last year, I could paint a red bullseye on a zinc shack in Syria, and a Singaporean somewhere would still give me his life savings for it. Fortunately, we may have developed more common sense of late.

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by Ryan Ong

NOW that America has severed its final connections to reality, we’re ready to re-live the Cold War years. It’s back to conflicts via proxy militia groups, stand-offs against China and Russia, and chest thumping apes elected to office.

The only difference is this time, it’s due to too much oil instead of too little.  Here’s a round-up of some financial issues from this year, that you’ll be hearing about next year.

Oil pump jack. Image by Flickr user: Paul Lowry

by Ryan Ong

HIGH stakes poker bears a close relation to international oil issues. It’s all about the ability to lie, spot lies, and sometimes just get up from the table and run (nice hit-and-run there, Indonesia). Still, Opec has been in the news a lot, given the slump in oil prices. And now, the dip in crude oil prices may suggest their inability to trust each other (as well as non-Opec associates like Russia) may hurt them all:

 

What is Opec?

The Organisation of the Petroleum Exporting Countries (Opec) was founded in Baghdad, in 1960. There were initially just five members: Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. Because for some reason, the worse your human rights record the more likely you are to strike oil. Today, Opec consists of 13 nations in total, including Algeria, Angola, Ecuadaor, Gabon, Libya, Nigeria, Qatar and the United Arab Emirates (UAE).

Opec’s official mission is “to coordinate and unify the petroleum policies of its member countries and ensure the stabilization of oil markets, in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers, and a fair return on capital for those investing in the petroleum industry.

Here’s the simplified translation:

Opec is an international cartel of oil producing countries, which team-up to restrict or increase oil supplies. They do this because it allows them an unfair degree of control over oil prices.

Opec countries produce 42 per cent of the world’s supply of crude oil, and they hold over 70 per cent of the world’s oil reserves. When Opec countries need to make more money, they get together and sacrifice babies. Then they decide how they will each restrict the amount of oil they produce, in order to cause global demand to exceed supply. This causes oil prices to rise across the board.

To give you an analogy, this would be the equivalent of Singtel, M1, and Starhub teaming up to restrict the number of people who can have internet access. That way, the demand for internet access will be so high, they can charge $1,000 dollars a month for subscriptions and still get away with it. Needless to say, this would be so illegal the judge could probably walk up to them and beat them with the gavel.

Unfortunately, Opec is international. Until the day the Illuminati creates a one world government (the one the political nutjobs on your Facebook page are sure is right around the corner), there’s no way to regulate sovereign states from behaving like this. So Opec gets away with controlling oil prices, a fact that endlessly annoys global powers like the United States, China, and the European Union (EU).

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Energy independence 

The existence of Opec is one of the main reasons behind the desire for energy independence. The goal of energy independence is to minimise a country’s vulnerability to organisations such as Opec: if your country can produce sufficient oil for its own use, it will be safe from the shenanigans of Opec. That’s the theory at least (some economists have argued that energy independence is wishful thinking and a country would still be impacted by oil prices even if it produced all of its own).

A big advocate of energy independence is the United States of America. As you might know, this year the Americans made a departure from their regular practices by electing a turkey instead of slaughtering it. President elect Donald Trump is a huge believer in energy independence, and has promised to take steps to curb America’s reliance on foreign sources. This will pit him against Opec at some point in an entertaining Lex Luthor versus The Joker kind of way.

 

How is Opec indirectly causing problems for Singapore?

American companies have developed a way to extract oil from shale rock via a method called retorting. This gives America the potential to become the largest oil producing country, given time. They could even beat Saudi Arabia and the other Opec countries.

Now Opec members aren’t actually worried about the US becoming energy independent. What they’re worried about is competition. If America also starts selling oil (a natural development because they have so much of it) other countries may start buying from the US instead of, say, a bunch of oil producing jerks who’ve been pushing them around for decades (read: Opec).

So in 2014, Opec looked at all the oil America was producing, and decided to wage a price war. They would continue to churn out millions of barrels of oil, despite the oil that the US was also putting on the market. They knew the abundant supply meant the price of oil would plummet, hopefully bankrupting shale oil extractors (shale oil operations are more expensive than traditional oil wells). At one point, oil prices fell below US$32 (oil is always priced in US dollars), from a historical norm of around US$100.

The resulting flood of oil caused many energy companies to go bust as their profit margins fell in the red. In 2014, selling oil was like selling laxatives in the middle of a global diarrhoea epidemic. The prices hit rock bottom and caused serious problems around the world. Singapore was no exception. For example, companies like SembCorp Marine and Keppel are the world’s leading suppliers of oil drilling equipment. When South American oil company Sete Brasil went bankrupt, it cost the companies billions of dollars. And it’s all because of the tug-of-war between Opec and America.

 

Opec’s recent, high stakes development

This month, Opec finally flinched and decided to cut production. This is the first time it’s done so in eight years. Saudi Arabia has lost billions in oil revenue due to the price war and for once, it’s responding by cutting off something besides heads. Venezuela is on the verge of a humanitarian crisis because oil accounts for 95 per cent of the country’s exports. Qatar and the UAE are not too happy at the prospect of further losses, which couldhttp://themiddleground.sg/wp-admin/post.php?post=65798&action=edit result in unrest and angry citizens.

This is how much Opec has committed to cutting:

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Screenshot of table from article from Oil & Gas Journal

However, when Opec agrees to cut production, it becomes a high stakes game among members. Whilst every Opec country wants oil prices to go up, none of them want to be the one to cut the most production (because it means they sell less). And while they can come to any number of agreements they want, there is still a strong incentive among individual Opec members to cheat.

Now this may shock you but a group of of unregulated, manipulative, price gougers with poor human rights records tend not to be very ethical. It’s hard to get every Opec member to do things “for the greater good”, considering they each want to put their own interests first.

Iraq, for example, is in the middle of a costly war with ISIS and may decide to carry on production anyway. Venezuela, which is in desperate need of rebuilding, may not be too happy at being made to reduce production. (After all, they’ve suffered the worst in the course of this price war.) Indonesia straight up left Opec because it is facing an urgent need to balance its budget before the end of 2017.

For now, it remains to be seen if Opec can remain coherent and follow through with its about-face on oil production. And in the meantime, Russia (a major oil producing, non-Opec country) is lurking in the wings. How they respond will also affect Opec’s ability to cut production. If it moves in aggressively when Opec scales down, Opec will probably resume production.

For this year and the next, everything is up in the air for oil producers.

 

 

Featured image from TMG file.

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by Ryan Ong

AIRLINE ticket prices work like a Singaporean driver’s turn signals: random, or based on rules that only make sense to them. That explains the rise of airline ticket comparison sites. But before you start booking that trip to Syria (or whatever’s a popular holiday destination these days; I don’t keep up with tourism trends), you should know a few things about how flight comparison websites work.