Hijacking Fuel Prices

India’s political parties, especially those in the opposition, transport and taxi unions and nearly everyone else is extremely agitated about the recent fuel price hike but only few realize that the Rs3 (roughly 8.5%) increase in diesel prices would affect freight transport costs by only a marginal 0.12%, that is equivalent to 12 paise on every Rs100 that is spent on what one purchases. Murad Ali Baig, auto expert and columnistThe impact would be much more on bus and taxi fares but even here the impact should be 2.8% or less than Rs3 on every Rs100 spent. Transporters, industrialists, bus and taxi companies are however demanding huge fare increases to exploit the situation.Elementary arithmetic will however show that the cost of transport in the cost of most goods averages just 5% and the cost of fuel is usually about 35% of this cost. India’s four million trucks and one million buses have to additionally pay large finance costs, depreciation, staff salaries, tyres, repairs, taxes, bribes, etc. So if the cost of diesel is just 35% of 5%. it is barely 1.4% of the cost of most of the goods that one buys. Therefore, the recent 8.5% increase in the price of diesel should only have an impact of about 8.5% on this 1.4% or a miniscule 0.12%. It will vary a little and be even less on high value goods that are transported over long distances and a bit more on milk and vegetables that are transported over short distances.The impact of diesel costs will however affect passenger fares on taxis and buses more seriously, especially when fuel accounts for about 35% of transport costs. But an 8.5% price hike on this 35% should result in a small 2.8% increase in passenger fares. Bus and taxi fares should therefore be up by about 3% and not by the huge amounts that are being demanded.Road transportation is today estimated to account for over 55% of the country’s diesel consumption while another 6% is consumed by the railways that transport most of the food grains, sugar, petroleum products, steel, coal and cement, so subsidized diesel for the railways will ensure that the impact on inflation is further moderated. With this and the reports of a good Rabi crop, the anxieties regarding huge inflation seem misplaced. As for the farmer community, diesel consumption for tractors and irrigation pumps is estimated at about 23% of India’s total diesel consumption but the cost of diesel is less than 2% of the cost of agricultural products. The price increase should again have a marginal direct impact on food prices. Very few of the tractors and pump sets are owned by the poor farmer so where are the weaker sectors for the Government to protect? There is however an affluent segment that does not deserve any subsidy. It is roughly estimated that 10% of India’s diesel is consumed by private gensets. Few are aware that it is against the law to supply loose fuel to anyone except to farmers, so the widespread malpractice of loose fuel supplies, now so essential for the smooth running of offices, malls, condominiums and industries, will have to continue, although they can easily be made to pay a fair price. The dedicated tankers that supply them can also be made to charge much more.The issue of petrol prices for the roughly 200 million people who use 60 million petrol-engined 2-wheelers and 12 million cars on a daily basis needs to be addressed. They consume only 17% as much fuel as diesel. But they are a political constituency with many poor users and do not deserve to be punished in the name of the weaker sectors. The Rs5 or roughly 12% petrol price hike will hit their pockets directly.However, the automobilization process cannot be reversed and the average car owner will reluctantly raise his cars’ petrol bill from Rs3,000 a month to Rs3,400 and his bikes’ bill from Rs300 to Rs340. This may appear tough but is unavoidable. The main beneficiary of the continuing subsidy on diesel and even kerosene in relation to petrol are the not-so-weak sections of fuel adulterators.And although the Government has finally taken a partial plunge by hiking the prices of fuels, further upward revisions are likely in the months ahead because the old prices had been pegged to a time when crude cost $60 a barrel and should have more than doubled now that it has hit $138 a barrel. The situation is unlikely to improve in the months ahead with the shrinking fossil fuel reserves worldwide. There have been no major oil or gas discoveries for two decades and almost all the big reserves are seriously depleted. There are plans to extract liquid fuels from large tar sand beds in Canada, Venezuela and elsewhere and from the liquefaction of coal but these will take many years. Biofuels and hydrogen also look promising, but will need even more time before they can be tested and ready for use. With increasing prosperity, people in all developed and many developing countries are using much more energy for personal transport, entertainment, computers and for heating and cooling their homes and offices. Thus the costs of liquid fuels will have to go up further in the months ahead because no political party will be able to sustain the current, over Rs200,000 crore direct and indirect, annual fuel subsidies.

(Source:http://www.livemint.com/2008/06/13095457/Web-Exclusive--Hijacking-fuel.html)

Thoughts to Ponder upon

1- Freedom how free it is?
What’s the limit of freedom.... Is there any... or it just beyond... That’s is why its freedom? How much it costs us, it sounds FREE for dumb (DOM) but so called knowledgeable pays for it as get caught up in knowledge (No + Edge) and never become free...!!

2- Trust, how fair it is?
How it feels when someone puts all his/her trust in you? Up to an extent more than oneself on its own..!! Does it give warmth of bondage of coldest scare?? It happens when a person becomes very significant for someone who has lost direction and searching the path with direction in tattered pieces of his days... suddenly founds a light and strength with your guidance... and instant liberation...! But how about being someone’s God, you loose your freedom as you are no longer free someone's trust is binding you which you need to take care... it you break it its not Trust...!!

3- How personal is personal life?
Personal life portrayal on public. What is personal? The fact which is confined to only one that’s you. What is public? The fact which get shared among more than one (off course micro view). Personal life meaning life within, to the micro level thoughts... Our thoughts are our very own but the moment we share those with others it no longer personal. Trust act as binding and accompanied with expectation hinders the ripples... If you tell your secret to wind don’t blame it when it reveals it to tress..!! Trust sounds discrete but it is backed but expectation isn't it..!!
When we reveal our thoughts to others, we are free to do so... Why isn't other person free to pass it on?? How personal is personal life up to an extent of invisibility, anonymity with the doubt of existence OR visible up to an extent of chain of freedom-of-expression to get mingle with public...!!

For You...

Shiny eyes...
Careless smile...
From the deep of your heart,
As reflection of my presence,
On your face..
That’s all I will ever need,
For my true happiness...!!

A walk,
On a lonely road..
Greeted by tress...
Welcomed by drizzling..
Cool breeze adding symphony
Your hand in mine,
That’s all I ever need.
For my days to get refreshed..!!

Driving Forces Behind Crude Oil Prices

Crude oil prices are roaring louder, which is nudging 150 USD per barrel… I always wonder how world decides this price?

How transparent and fair are the driving forces behind sky rocketing pace of oil price rise??

1. A significant percentage of physical oil transactions occur outside the regulated market and beyond the view of analysts and traders.
2. The day’s spot price denotes the price at which a few origins of crude are sold.
3. As the market rarely has real-time knowledge of production and stocks, traders have to place their faith on the figures put out by a few agencies such as Platts.
4. Crude futures do not move exclusively in response to physical supply and demand conditions. They are determined by many factors such as-

• The positions taken by traders in many other assets (for example , bonds, equities, foreign exchange and other commodities)·
• Declining dollar
• Market speculation
• Refinery bottlenecks and geopolitical concerns.

The price of a barrel of oil depends on –

1- Grade (which is determined by factors such as specific gravity and sulphur content)

2- Location.

3- The lighter, sweeter crudes (low sulphur) are easier to refine than heavier, sourer crudes.

With the increase in crude oil prices, even refining heavier, sourer crudes has now become more profitable. Oil prices have risen, particularly for better quality crude oils, to bring supply and demand into balance.

Benchmarks for oil pricing system-

I- Brent - Almost all oil traded outside America and the Far East is priced using Brent as a benchmark.

II- West Texas Intermediate - is the main benchmark for pricing oil imports into the USA.

III- Dubai-Oman -is used as a benchmark for Gulf crudes (Saudi Arabia, Iran, Iraq, the UAE, Qatar and Kuwait) sold in the Asia-Pacific market.

In crude oil, spot contracts mean delivery over the coming month, e.g., a contract signed in June for delivery in July. The market consists of refiners, traders, producers , and transporters. Spot markets allow buyers and sellers, e.g., refiners and marketers, to adjust their supplies to reflect near-term supply and demand conditions. Till the late Eighties, the spot price of reference crude varieties was the accepted price of the day. But when the total production of the benchmark crudes began to drop and the volumes traded daily correspondingly fell, it became difficult to determine the correct price. Price assessing agencies came up with a few solutions. To make up for the drop in Brent production, for instance, in July 2002, Platts broadened its definition of Brent to include Forties (UK North Sea) and Oseberg (Norway). The new benchmark was called BFO.

The more lasting solution was shift to a futures market. Crude futures have two main advantages : one, they are not easily distorted by low spot market volumes. Two, futures price is determined by actual transactions in the futures exchanges and not on the basis of some assessed prices by oil reporting agencies. At any time, a seller or a buyer can look at the prevailing price and use it in spot and term contracts. The volume of daily transactions and open positions also helps investors gauge the liquidity of the market. Since most traders cancel their positions, futures transactions rarely lead to actual delivery.

Though crude futures prices are more transparently fixed than spot prices, not all contracts are successful. A crude oil contract becomes trustworthy only when its production is not controlled by a few companies and it has reasonably large volumes. If a few companies or even one company controls production, then the likelihood of price manipulation rises. Even if the oil pipelines and infrastructure are owned by a few, it increases the likelihood of manipulation.

(Source: ET)

Three girls: Every Individual has a Story

I was reading a book named Red Carpet by Lavanya Shankar… Apart from the content of the book which is very thoughtfully written, I liked the punch line of the book also. It says “Every family has a story!!” agreed rather I believe in its elaborated version, every individual has a story. Some are shared, some are told and many are even untold. I knew three people, who have something; which can be perceived as story but they are so innocently unaware of it!

Sarandha, she is very affectionate, caring, amiable and sweet girl. It hardly takes any time for her to mingle with people its like putting rose water drops in plain water which will get mixed so well that its difficult to see those two as separate entity. Parul, she is quite, clam, reserved girl. Will talk as much as needed and no cribs to others about anything whether it’s personal life or work. And Mrinal, who is person yet to explore world as good or as bad on her own. Innocence is still alive and think everybody around is good. Lot of preoccupied thoughts and sees the world as other people have shown her.

The biggest character of this whole play on this earth has put these three girls Sarandha, Parul and Mrinal together. They are set free to act in their very own way; they have got their own freedom of speech, expression, sharing, etc etc.. Sarandha initially felt that her space is getting breached, but very soon overcomes it and as per her very own instincts mingle with other two. They feel the warmth of their friendship. They share jokes and giggle together. They share low and weak moments and ready to give shoulder. Silently ignorant about the sweet poison called expectation which leads towards taken for granted concept. Slowly they are caught up, and seeing friendship which they were nurturing and cherishing is getting tattered. Bitterness infused into their relation as nature does to chili. All the heartily laugh and giggles got ruined. Rotten ill words blabbered in high temper; passes on to other with spices and misinterpreted works as perfect poison to the ears. Instead of checking for the driving cause behind it is sweetly acceptable. Every ill thought in their mind started attracting numerous similar ones. Distance which is literally negligible among them started appearing more than thousand of miles. Phone and internet become admiringly adorable to confirm the marked distance mended. The ecstasy of proving own point to be right gives a feel good factor. Nothing can be as melodious as hearing the criticism of person whom we envy. That works as soothing balm to unhealed wounds caused by our own bitterness.

Today Mrinal is leaving the city forever, there is wish in her heart to bid a good-bye with a warm hug to her mates who had stand for her in her thick and thins. They would accept the seasons of your heart just as you have always accepted that seasons pass over your fields and you would watch with serenity through the winters of your grief. Alas! One has to surrender itself to destiny which one carefully carves for itself….

“In the sweetness of friendship let there be laughter, and sharing of pleasures. For in the dew of little things the heart finds its morning and is refreshed”.

Look Within

There is no fire like greed,

No crime like hatred,

No sorrow like separation,

No sickness like hunger of heart,

And no joy like the joy of freedom,

Health, contentment and trust

Are your greatest possessions

And the freedom your greatest joy

Look Within

Be still

Free from fear and attachment,

Know the sweet joy of living in the way.

(Pic Source: http://images.salon.com/books/review/2006/06/26/wade/story.jpg)

Oil Price Rise: Is OPEC really opaque??

Recent sweltering news which is considered as one major factor among various other reasons behind bearish trend of US stock market as well as Indian too; the exceptional rise in Oil Price to record level. I was wondering what could be the possible reason….? "According to normal economic theory, and the history of oil, rising prices have two major effects: they reduce demand and they induce oil supplies," ....But not this time.....!!!
As-

1. OPEC-cartel has plenty of reserve as well as non-OPEC countries like Russia, Norway, Greenland, West Africa etc etc…
2. So it’s not the crisis at supply end due to resource… Demand is increasing at constant rate not exponentially….
3. Apart from US being the world’s largest consumer of oil, consumption in other developing nations (BRIC) is increasing.
4. Therefore demand is not going to reduce due to price rise.
5. “Some Factors” which are driving the OPEC, which is responsible for 75% of reserve to restrain the supply.
6. President of OPEC makes statement that oil prices to remain unstable.
7. Long-term oil futures, dated for 2013, now trade at $108 a barrel, a strong indication that investors see little cause for prices to drop in the next five years - partly because of low expectations about production growth. (In NY mercantile exchange)

Few basics information:

Price of 1 Barrel oil as of today (14-May-2008) = USD 124

Price of 1 Barrel oil in year 2000 = USD 24

1 barrel = 42 gallons

1 barrel = 117 liters (Approx)

In India we get oil at subsidized price.

One of the best texts which I came across to know the background of oil price history and analysis read here

All the above points carry their own significance but the fifth points had gained more attention from me. I gathered some information behind driving force which is leading to restraining of supply. Following is the list, out of which some factors responsible for less supply and subsequently price rise are interdependent:-

1. Monopoly of OPEC: This factor is well known as major pie of reserve is with them.
2. US economy downturn: that’s continuing since quite some time attributed to sub prime and bearish trend of market. Increasing worries that the US downturn will spread globally – with the slump in US employment confirming that the US downturn is likely to spread into consumer spending which in turn will have a big impact on Japanese, European and Asian exports. Ongoing problems in credit markets with the whole securitization process (whereby individual loans are packaged up into securities) that has underpinned a lot of credit growth in recent years now in disarray, and the banks unable to take up the slack.
3. Middle East peace process: Gen. Mansour al-Turki, spokesman for the Saudi Interior Ministry said, "They have recognized that the al-Qaida ideology is an ideology to inflame terrorism rather than trying to set up a new approach for Muslim societies". Apart from that tensions between Iran and the international community (in particular the U.S.)
4. Commodity trading: Due to US downturn in economy, commodity price have increased.. This is also reason for oil price increase… Oil has been traded globally for more than a century, and commodity pricing in the oil sector is well-established. Crude oil prices behave much as any other commodity with wide price swings in times of shortage or oversupply. The crude oil price cycle may extend over several years responding to changes in demand as well as OPEC and non-OPEC supply. There has been a significant increase in paper trading of crude oil on world markets over the last few years (2005 to 2008). While the effects of increased trading activity are hard to quantify, it appears that speculative trading has, at the very least, increased the level of volatility in crude oil prices.
5. Terrorism: This is something much rumored… Story goes like this; a significant portion of money earned through oil trade goes to terrorist organizations. And they keep some money aside for weapon and rest they pump in to stock market. As and when need arise to them they pull the money out from market and its huge sum of money which is sufficient to crash the market….!!
6. Inflation: This factor directly translates to reason for higher price… As soon as world oil prices move up, inflationary expectations take over… :)
7. Cost of production: geographical, political factor along with cost and availability of labor…
8. Government Policy: Most of the Non-OPEC countries they have astringent rules for FDI to set up refineries
9. Increasing consumption: Consumption is increasing, but not at exponential rate, though US blames developing countries for increasing demand…
10. Lack of alternative energy sources: “oil is non-renewable energy source” is well known fact but still no alternative option had been introduced on mass level….
11. USD Depreciation: Significant depreciation of the U.S. currency due in part to credit problems in the sub-prime mortgage market.
12. International politics: I was reading an article which co-related Butto’s assassination and increase in oil price. It says rise in oil prices after the assassination Bhutto is an evidence of the size of the security interdependence between the Gulf States and Pakistan, since the start of the global war on terrorism. The Hariri of Lebanon invested with Nawaz Sharif and later failed to mediate between Pervez Musharraf and Nawaz Sharif last Augustus. Harirri was embarrassed later by the Pakistani reaction saying: they do enjoy a strong relationship with Saudi Arabia, so they do not require mediation by a person exercising political activity in another country.(I am not very sure how much this factor attributes to oil price rise…)
    
    Factors responsible for hindering to bolster production:

• Higher petroleum taxes
• Tougher contract rules
• Scarce manpower
• Swelling costs
• Political wrangling and violence
• 
  Following related stories could be good read:
  1- Bush urges Saudis to boost oil production
  2- Bush Visits U.A.E., Continues Push for Mideast Peace
  3- Oil prices to remain unstable
  4- Behind record oil prices, troubling signs in production
  5- Are high crude oil prices here to stay?
  
  (Lots of thanks to Anureeta, Mr D’Souza, Bond, Niranjan, Aishwarya and pragya to give me valuable inputs …:))