The pandemic wreaking health havoc worldwide has likewise rewritten how global business works. It is now unsure how to cope with the novel no-demand-no-supply economy. The crisis has now crept into the oil market, disrupting the global demand for energy. Devoid of a timeline on when the lockdown ends in the developed world, the oil market painfully wilts from protracted oversupply.
For the first time in history, the price of US oil plunged into the negative territory with producers compensating buyers just to relieve them of the commodity on fears that their oil tanks would no longer be able to carry the weight of unsold stocks. Their storage capacity could run out in May. The price of a barrel of West Texas Intermediate (WTI), the benchmark for US oil, fell to as low as minus $40 a barrel on April 22. The price of a barrel of Brent Crude—the UK benchmark for oil—has also slipped below $20, its lowest level since 2002.
“This is off-the-charts wacky,” Stewart Glickman, an energy equity analyst at CFRA Research was quoted as saying. “The demand shock was so massive that it has overwhelmed anything that people could have expected.”
Since oil is traded on its future price, and May futures contracts are due to expire on Tuesday, traders were understandably keen on offloading their holdings to avoid incurring storage costs on any oil delivery. That technicality has driven in part the global oil market’s severe drop on Monday.
Under normal times, a collapse in oil prices is most welcome in gas-guzzling nations. But for countries which produce the black gold, it spells cataclysm and agony for the public. The energy market is what has fed and kept public service to millions of people in oil producing countries. All economies that rely heavily on oil are already overburdened.
Ironically, the falling oil price will benefit Communist China, the origin of the pandemic. The country is oil’s biggest patron, buying a fifth of global imports and is allegedly hoarding cheap-crypt crude as it readies to crank up its production lines again.
In normal economic circumstances, cheap oil helps the economy since Central Banks across the globe will have a better grip on inflation and unemployment. With inflation kept in check because of falling prices, Central Banks can freeze interest rates lower without imperiling headline inflation (a measure of the total inflation within an economy, including commodities such as food and energy prices [e.g., oil and gas], which tend to be much more volatile and prone to inflationary spikes).
Falling oil prices (again under normal times) can help governments rein in inflation. When inflation is already under control and assuming it is close to zero, however, cheap oil prices will not help reduce excess inflation, and may in fact cause outright deflation. In the Philippines, for example, the headline inflation decelerated further to 2.5 percent in March 2020, from 2.6 percent in the previous month.
Many consumers should be ecstatic with lower oil prices. But with the lockdown, who needs petrol?
Quarantine extension looms
The resignation of Socioeconomic Planning Secretary Ernesto Pernia has exposed cracks in the agency tasked to oversee the country’s response to the pandemic. Pernia and Presidential Adviser for Entrepreneurship Joey Concepcion were pitching for instituting selective quarantine system and allowing the use of some forms of public transportation.
Apparently, their idea did not jibe with the other members of the Inter- Agency Task Force (IATF). Pernia was particularly pushing for the resumption of public works, which have been temporarily shelved because of the pandemic. He believes the completion of several infrastructure projects has to continue, especially at this time when traffic is almost nil.
In an exclusive interview with CNN, Pernia said he quit because of differences with other government officials involved in designing policy approaches to shoring up the economy amid the pandemic. He was among the Cabinet officials pushing for “modified quarantine” or the relaxation of the stringent restrictions under the current enhanced community quarantine (ECQ) after April 30. Under that proposed easing, some industries and public services would be allowed to resume operations and get the economy going. Other government officials were instead arguing for first containing the Covid-19 spread.
According to Pernia, his training in economics leads him to believe that “[In] a market economy like ours, the private sector is the engine for economic growth, while the government provides the kind of policy environment that encourages the private sector to thrive. He said he is not “a lone voice because, for example, there have been proposals to get on with some critical infrastructure projects, like the maintenance of the MRT [Metro Rail Transit System].”
Some people are expectedly worried. Since day one of his reign, President Duterte has been toying with the idea of either imposing Martial Law or declaring a revolutionary government. This has led to fears that the Duterte administration is using the pandemic as a flimsy cover to realize his life-long dream.
The threat to declare Martial Law-type restrictions in some parts of the country has been floated for some time as a response to non-compliance of ECQ guidelines in some isolated cases of mayhem, such as those in a tiny estero in Tondo, and the traffic buildup in Las Piñas and Edsa.
A friend from the North earlier messaged me to narrate about “much bigger areas of Luzon where order and silence will put cemeteries to shame.” This just means, he said, that isolated cases of ECQ violations do not warrant the imposition of some form of Martial Law or direct military control of normal civilian functions.
Balance must be established between health and commerce. The government should allow some form of economic activities lest we fall deeper into an economic pit. The problem lies in the constitution of the agency tasked to handle the Covid-19 pandemic. Those planning the crisis response are mostly military men who some people have pointed out to be “control freaks.” It is the disease that must be controlled—not the people.
For me, the best plan is to take a closer and more thorough look at what other countries have done to contain the virus. What did Vietnam do that it has zero Covid-19 deaths? How was New Zealand able to recently lift its lockdown? These countries must be doing something worth emulating.
Military solution to a health crisis is not acceptable and doable. It is, to say the least, suspicious.
For comments and suggestions, e-mail me at mvala.v@gmail.com