And you thought oil at $135 is unbearable. Well, oil breached the $140 level over the weekend to settle at $142. Advocates of peak oil theory are hailing the increase and exodus of smart money from the wobbly stock market into the commodities sector.
Saudi Arabia has promised to increase oil production by 200,000 barrels a day. A drop in the ocean, some experts say, if peak oil theory is right and we are going to face a potential decline of 4 million barrel-per-day from aging oil fields annually.
In fact, if no new sources of oil are discovered, OPEC may use their remaining oil for domestic consumption first before it even gets exported.
I am not sure if China’s removal of fuel subsidies will curb demand or not. In the short term, the beneficiaries are the distressed Chinese refiners. They have been suppressed from profiteering but the free-market pricing will give them extra motivation to churn out more gasoline, until there is really a fundamental shift in energy usage.
The critical question for stock investors is what to expect of oil prices 3-4 years from now? If nothing changes, I think it is realistic to see oil at $200 per barrel and gasoline at $7 a gallon. Whether we like it or not, something has to give. First casualty on the list will be the automotive industry and the related jobs.
It is the dream of most Singaporeans to own a car but multiple ERP gantries, increasing ERP rates in CBD and exorbitant gas prices have made us shun our beloved cars or at least drive lesser. And you know what, petrol may cost as much as car installments. Hardest hit are the budget car owners, the impact of fuel and ERP on the deep pockets of those buying luxury cars is less severe.
Taking taxis are also becoming an expensive habit with fuel surcharges in the pipeline after recent hikes in taxi fares.
Over the next five years, I believe our roads will be cleared up of much vehicles. A lot of us will favor public transport rather than having fuel consumption eat into as much as 15-20% of our take-home pay. The consolation is that our public transport is “world-class,” according to the government.
This means more revenue for SMRT and SBS as ridership increase and the respective stocks will be in the pink of health, energy crisis or not. Any fuel increase is likely to be passed on to passengers. We have no choice but to pay up since the market is cornered by only a few operators.
Certainly, public transport is the lesser of two evils and we can do our bit to save the environment. My advice is to buy a few of their shares when the price is low to partake in the profit sharing.