Electricity bills up 21%

[foreverlovex]

thatz your idea, not mine. :sticktong

at the end of the day, has privatising energy market lead to a more efficient outfit? since major sentiment is that they just pass the increase to consumers...

maybe u can try to read the materials I linked to?

Not many economists are interested in Singapore electricity and energy issues so only a few have wrote academic papers on it. Think for academic ones maybe you can look at some of the papers written by Dr Chang Youngho?

 

[sORe-EyEz]

maybe u can try to read the materials I linked to?

Not many economists are interested in Singapore electricity and energy issues so only a few have wrote academic papers on it. Think for academic ones maybe you can look at some of the papers written by Dr Chang Youngho?

maybe u can try answering some of my questions in the past few posts? rather den just presenting ur views...

dun blame me if dun see eye to eye on some issues if u ignore others, den carrying on whacking...

 

[SNAG]

oil is actually bought at spot price. But for certainty in the price, it has to be hedged. It is insane not to hedge as you will be subjected to great price volatility.

Theory wise, 3 months forward price is likely to be what is the spot price 3 months from now that ppl expected to pay.

I.e. if ppl expect spot prices to fall in 3months time, 3 months forward likely to be around that price. I just explaining things in a simple way. Academically, there is a million and one ways to model such stuffs.

What i mean is financial hedge. This is to give certainty.

If you don't mean paying $X for the product say 3 months from now......you will hedge at $X to be settled in 3 months from now.

3 months from now, at least you are certain that you be paying only $X and not $X+Y. Of coz it can work against you too.......if say the product price falls below $X to $Z. This means that you will be overpaying $X-$Z.

The key point is to smooth out price volatility and have price certainty.

This is a good question.

Global gas price is linked to oil price movement. This is same for every commodity that can be a good substitute to oil (e.g. coal). You may look at Henry Hub gas prices and compare it with oil price movement over time. As a small country with no resources we can't delink from the market. If we don't pay market price, we don't have our oil and gas and hence electricity.

There is a global market for gas prices and generally, gas contracts are linked to oil price movement. Our neighbours are not stupid.

foreverlovex hit the nail on the head - it's just bad luck that they locked into a forward contract 3 mths back (for now) when crude prices were way high. Take a look at another way - not locking into oil forwards means that you're speculating on the market. Yah, everyone's cursing at the "wrong hedge", but what if spot crude is now at USD$200/barrel?

However in reality, given that forward contracts are often used in speculating on the oil market (and since gas is linked to oil) - hedging through forwards might not necc. provide you with a true hedge against gas prices. But then again, it's the public that they are dealing with - can they (rather, we) afford to take the risk through actively managing our gas requirements? All it takes is just 1 wrong bet, and we will curse and swear like mad.

(edited this part for clarity: I'm using oil as an example, but gas prices are very much linked to oil, so it's the same idea. my brain isn't working.. )

So at the end of the day, probably best for them to stick to existing arrangements. My POV though. It'll only be for 3 months (hopefully!)

Given the scenario, I will let my call option expire if the strike price is less than $100 and buy at the spot rate $55. But that does not mean I have lost $45, what I have lost is the premium I pay for the call option which is much less than $45.

They have hedged the oil at S$155, I think is it fair as major airlines have also hedged at that price range.

I think you're referring to options and not forward contracts - there is a difference. Options are "insurance premiums" that you pay to be able to buy/sell an underlying, at a particular price (termed as the strike price), sometime in the future (exercise date). In your scenario - you are able to forgo the option (just throw it away) because you merely bought a right to buy/sell the underlying at strike price.

On the other hand, forward contracts are real contracts that you enter with another counterparty to buy/sell an underlying at a specified price in the future. There is no way to "forgo" a forward, because you have the obligation to make good your promise.

Only way to offset this would be to unwind the forward, by entering into another forward contract with the same terms, but on the opposite direction. There is no way to "forgo" the contract just like that.

 

[foreverlovex]

foreverlovex hit the nail on the head - it's just bad luck that they locked into a forward contract 3 mths back (for now) when crude prices were way high. Take a look at another way - not locking into oil forwards means that you're speculating on the market. Yah, everyone's cursing at the "wrong hedge", but what if spot crude is now at USD$200/barrel?

However in reality, given that forward contracts are often used in speculating on the oil market (and since gas is linked to oil) - hedging through forwards might not necc. provide you with a true hedge against gas prices. But then again, it's the public that they are dealing with - can they (rather, we) afford to take the risk through actively managing our gas requirements? All it takes is just 1 wrong bet, and we will curse and swear like mad.

(edited this part for clarity: I'm using oil as an example, but gas prices are very much linked to oil, so it's the same idea. my brain isn't working.. )

So at the end of the day, probably best for them to stick to existing arrangements. My POV though. It'll only be for 3 months (hopefully!)



I think you're referring to options and not forward contracts - there is a difference. Options are "insurance premiums" that you pay to be able to buy/sell an underlying, at a particular price (termed as the strike price), sometime in the future (exercise date). In your scenario - you are able to forgo the option (just throw it away) because you merely bought a right to buy/sell the underlying at strike price.

On the other hand, forward contracts are real contracts that you enter with another counterparty to buy/sell an underlying at a specified price in the future. There is no way to "forgo" a forward, because you have the obligation to make good your promise.

Only way to offset this would be to unwind the forward, by entering into another forward contract with the same terms, but on the opposite direction. There is no way to "forgo" the contract just like that.

I am glad that someone else understands the situation.

 

[night86mare]

i thank foreverlovex and SNAG for explaining the situation - i was also quite perturbed as to how this price adjustment worked out.

understandably this might not absolve all responsibility for the supposedly accused organisations - but even then, at least the situation is made clearer. and as usual, when the mindless complaining mass meets with something that appears to defy their own mentality.. it falls silent.

 

[Lenscapes]

Oil may fall to US$50
http://www.straitstimes.com/Breaking+News/Money/Story/STIStory_285027.html

 

[SNAG]

Oil may fall to US$50
http://www.straitstimes.com/Breaking+News/Money/Story/STIStory_285027.html

Hmm - if you read between the lines, you'll see that their USD$50 forecasts are based on the "unlikely event" of a full blown global recession. That is IF their worse case scenario comes true.

Sometimes, you'll have to take the press with a pinch of salt - they tend to report things based on a particular perspective, and take that as the absolute truth.

Although I won't be complaining if oil prices fall, but falling to that levels would mean that we are globally in recession, which isn't a pretty thing either.

 

[Curry]

It's quite interesting to see that they project oil to be at $150-ish when the market thinks absolutely otherwise.

Would be interesting to find out on how they reached this conclusion.

No one can predict. just an excuse to get more $$ out of peasants. :thumbsd:

 

[blazer_workz]

Oil may fall to US$50
http://www.straitstimes.com/Breaking+News/Money/Story/STIStory_285027.html

Hopefully this day will come..:bsmilie:

 

[obewan]

Need to charge my camera and flashlight battery in office 'loh'.
:bsmilie:

 

[jacob]

Hopefully this day will come..:bsmilie:

do you think they'll tell you it's going to be 50% reduction then?

 

[blazer_workz]

do you think they'll tell you it's going to be 50% reduction then?

When there is 50% unemployment..

 

[relaxxjaxx]

I'd rather say: "MAY OIL FALL TO USD50 per Barrel" :bsmilie:

 

[contaxable]

dont you guys know, ema hired yoda. May the farce be with them.

 

[netidolweb]

how come the utilities bill doesn't show the electricity old & new meter reading so that we know the amount used

 

[Silence Sky]

understandably this might not absolve all responsibility for the supposedly accused organisations - but even then, at least the situation is made clearer. and as usual, when the mindless complaining mass meets with something that appears to defy their own mentality.. it falls silent.

It is exactly this kind of mindless statement that has caused someone to announce his retirement from Kopitiam when the surrounding pressure mounted and choked him. This happened not too long ago, hope one can still remember the sting.

People will not complain without a good cause and what one have learnt from the textbook will not always translate into reality when it comes to people's daily lives. Lives go far beyond the four walls of the lecture room.

When people complain about the few cents fare hike and you defended the move. This does not mean that the people who complained are mindless and you being very mindful.
The difference between you and them is that, your transport is being paid for and complainers have to pay for the wife; three kids and the parents.

 

[Silence Sky]

I think you're referring to options and not forward contracts - there is a difference. Options are "insurance premiums" that you pay to be able to buy/sell an underlying, at a particular price (termed as the strike price), sometime in the future (exercise date). In your scenario - you are able to forgo the option (just throw it away) because you merely bought a right to buy/sell the underlying at strike price.

On the other hand, forward contracts are real contracts that you enter with another counterparty to buy/sell an underlying at a specified price in the future. There is no way to "forgo" a forward, because you have the obligation to make good your promise.

Only way to offset this would be to unwind the forward, by entering into another forward contract with the same terms, but on the opposite direction. There is no way to "forgo" the contract just like that.

There is confusion on my part. I all along though that hedging involved option trading.
In this case, why do they prefer forward contract to Option trading?

Forward contract, to me, is like buy oil at current price, take delivery at a later date and pass all the price differences to the consumer.
Why do I need to pay top dollar for them to do their so called "hedging"?
I think anyone in the street can do a equally good job when given proper instructions.

 

[blazer_workz]

It is exactly this kind of mindless statement that has caused someone to announce his retirement from Kopitiam when the surrounding pressure mounted and choked him. This happened not too long ago, hope one can still remember the sting.

:thumbsup: I definitely do remember..

 

[sORe-EyEz]

It is exactly this kind of mindless statement that has caused someone to announce his retirement from Kopitiam when the surrounding pressure mounted and choked him. This happened not too long ago, hope one can still remember the sting.

People will not complain without a good cause and what one have learnt from the textbook will not always translate into reality when it comes to people's daily lives. Lives go far beyond the four walls of the lecture room.

as long as 1 survive, 1 will continue to post... :bsmilie:

There is confusion on my part. I all along though that hedging involved option trading.
In this case, why do they prefer forward contract to Option trading?

Forward contract, to me, is like buy oil at current price, take delivery at a later date and pass all the price differences to the consumer.
Why do I need to pay top dollar for them to do their so called "hedging"?
I think anyone in the street can do a equally good job when given proper instructions.

the person who does these hedgings never need to pay from own pocket? :think:

 

[azul123]

:thumbsup: I definitely do remember..

Ditto that.

I remember also. :bsmilie:

../azul123