Oil's cheap, so why isn't everybody happy?

After a hard time in helping rice farmers hit by the rice-pledging scheme to get back their overdue payments and receive other financial aid, the government is now being challenged by a new round of hot issues. 

Once the world crude oil price drops, the Stock Exchange of Thailand (SET) Index normally drops too. Also, one-third of the total Thai stock market’s capitalisation is weighted by the energy sector.

A roller coaster of Thai shares on Monday with the most spectacular turnover – of Bt102 billion – in the SET’s 40-year history was due to investors’ reaction to a mix of several factors.

One was a negative forecast for energy stocks led by the country’s largest oil and gas conglomerate PTT. Another was the result of an unspecified local rumour. 

In fact, as economists said, there are positive factors when the oil price falls. This would not only help save the country’s capital outflow in terms of oil imports – which represent 10 per cent of the nation’s gross domestic product or Bt400 billion – it would also help reduce production costs, especially in logistics and transport, in the industry sector. 

Moreover, the government can take advantage of this opportunity to gradually reduce the oil subsidy and reform the country’s energy sector and restructure the price of energy with no pain. 

The government should also persist in its efforts to develop alternative and renewable energy to replace fossil fuel, which represents 40 per cent of total energy consumption. 

Still, why isn’t everybody happy with the fall in oil price, as they should be? 

A coin has two sides. The negative is that the way of correcting the falling price of rubber seems to be stymied. 

Given that the world crude oil price has been swirling downwards faster than expected – from US$100 a barrel to below US$60 in the past several months – the price of rubber, a kind of commodity – is also going down. The more oil price drops, the more the rubber price situation gets worse. Synthetic rubber is made up of crude oil but at a lower cost – and as a raw material it will be used more in place of natural rubber.

Some rubber farmers in Phatthalung threatened rally protests on Friday if the government does not buy rubber from them at Bt80 per kg as requested. Some have consented to accept a price level of Bt60 per kg, despite their costs being Bt64 per kg. The world rubber price ranges between Bt50-60 per kg.

The progress of the government’s financial aid scheme to rubber farmers, which began on November 15, has been just 5 per cent of its target of Bt8.2 billion, covering 850,000 rubber planting households. Each household will be paid Bt1,000 per rai of rubber plantation but not for more than 15 rai. 

However, that financial support is small, compared to their losses. 

Thailand last year recorded Bt500 billion in terms of income from rubber exports. But this year, the rubber exports won’t reach that level. 

No one knows how long the fall of crude oil prices will continue, as it depends on the Organisation of the Petroleum Exporting Countries, which recently decided to continue producing 30 million barrels of crude oil a day.

It won’t be easy for the Prayut government to shore up the rubber prices unless something happens to push up crude oil prices.

You win some, you lose some, and this is a fact of life.