Best not to intervene in oil market

I disagree with Mr Manoraj Rajathurai's call for tighter regulation of the oil and gas industry ("Oil market needs tighter regulation"; yesterday).

While the fall in oil prices, in his view, has hurt certain oil and gas companies deeply, the truth is that it has benefited most companies outside the oil and gas sector.

As Mr Rajathurai said, this has helped to weed out less competitive companies, rather than let them rest on their laurels.

In Singapore, lower oil prices have been a relief for most companies, especially our manufacturing sector, which has been struggling with growing labour costs, as this has brought down the cost of energy.

Lower oil prices have also acted as a tax cut, bringing cheaper fuel prices for people in many countries, including Singapore, allowing them to keep more of their disposable income.

Mr Rajathurai also brought up the possibility of countries working together to control oil prices. Already, there are organisations, such as Opec, set up with the intention of keeping oil prices stable by setting production quotas.

However, when each country is actively seeking to safeguard its own national interest, it has been difficult for quotas to be enforced.

To call on other world governments to work together to control the other side of the coin - the demand for oil - would be even harder.

Countries and governments should do their best not to intervene in markets, for it may encourage inefficiency and a possibly massive bill for the taxpayer.

Up to last year, when oil and gas companies made a killing with persistently high oil prices, there was no call by oil and gas companies to voluntarily cut prices for the interests of the wider economy.

To increase government intervention for stable prices only when prices fall, but not when prices rise sharply, could be seen as self-serving.

Opportunities like this slump in oil prices have given governments around the world a chance to deregulate and cut generous fuel subsidies, linking fuel prices closer to world markets, saving lots of money.

For taxpayers, using this money in sectors such as education and healthcare has delivered them better value for money.

For oil-producing companies and countries, it forces them to be more competitive and encourages the latter to diversify into other less-volatile industries, so they stay relevant in a post-oil future.

Lionel Loi Zhi Rui

A version of this article appeared in the print edition of The Straits Times on January 16, 2016, with the headline 'Best not to intervene in oil market'. Print Edition | Subscribe