The world turns around two effects: crude oil prices and currency exchange rates. The quiet pulse of love, the beacon of hope, and the sacred fire of passion do not count.
The quest for efficient and affordable energy production can be marked 2,000 years ago with the Greek mathematician/engineer Hero of Alexandria. His early example of a steam turbine, the aeolipile, led him to describe various machines operated by air, steam, or water pressure or pneumatic and hydraulic systems.
Coal provided the fuel for the Industrial Revolutions and crude oil for the advances not only in power generation but for some 6,000 other products that come from a barrel of crude oil. However, in 2023, fossil fuels generated over 60 percent of the world’s electricity, with oil and coal accounting for a large portion of that, and 32 percent of the world’s energy supply coming directly from crude oil.
Natural gas supplies 24 percent (43 percent in the US) and 27 percent of the world’s energy supply comes from coal, according to data from the Energy Institute.
However, it is the “6,000” that makes crude oil the lifeblood of the global economy. You can forget about the lipstick, shampoo, and deodorants that depend on crude oil. But you cannot ignore the asphalt used for road construction, roofing, and waterproofing. Without oil we do not have the synthetic rubber used in tires, footwear, and industrial applications.
Petrochemical feedstocks are the raw materials used to manufacture chemicals, plastics, and other materials crucial for producing everything from textiles to pharmaceuticals. No crude oil means no paracetamol, ibuprofen, or aspirin because they all involve petrochemical intermediates in their synthesis. We could probably do without plastic single-use water bottles, but fertilizers and pesticides derived from crude oil involve complex chemical processes to create the necessary compounds.
Natural gas is used to produce ammonia to produce nitrogen fertilizers and pesticides, illustrating the deep integration of petroleum into modern agriculture. The energy-intensive processes for extracting/processing phosphate rock and potash rely on petroleum-based energy sources.
That is why the trend of the global price of crude oil correlates with the trend of national inflation and economic growth, and the subsequent trend of the standard of living. Therefore, oil has an “international value” as does everything but more so because everyone needs oil.
But the number one thing with “international value” is currency, and that is determined by the cross-currency exchange rate. Like going home to Mom’s home cooking, everybody eventually takes their money “home” and at the end of the day, it is always about the currency exchange rate. For example.
Have you been complaining about the Philippine stock market for the past three years? Of course. The PSEi is down some 9.3 percent since the beginning of January 2022. That is if you invested using Philippine pesos. If you brought in US dollars, then you are only down 9 percent going USD to PHP to PSE back to USD.
However, if you were lucky enough to start with JP-Yen, then JPY to PHP to PSE to JPY made you a profit of 23 percent since January 1, 2022. Thanks to the fine currency management of the Central Bank of the Republic of Türkiye, a Turkish lira investment is 112 percent higher. However, an Argentinian who brought his or her Argentine pesos to the PSE currently have a profit of 819 percent. Olé. Muy bueno.
While high tariffs on imports into the US, or a devaluation of the US dollar, may be considered “long-term unwise,” the potential short-term benefits for the US trade deficit might make it worthwhile. Tariffs are just one of the arrows in Trump’s geo-economic quiver, used to extract cooperation on non-economic issues from Europe, China, Canada, and Mexico. That is why I do not see tariffs as a big issue and especially not for the Philippines.
More critically for the Philippines is if Trump makes good on his Drill, Drill, Drill promise to bring oil prices down. I think he will do that, and combined with keeping the US dollar stable rather than stronger, I see a better future for the PSE.
E-mail me at [email protected]. Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis provided by AAA Southeast Equities Inc.
