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Friday, March 29, 2024

Fuel overpricing

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For the third time in the past three weeks, Petron, Shell, Total, Seaoil, Phoenix Petroleum and PTT Philippines hiked fuel prices. At the height of the public uproar generated by the Mamasapano incident, oil price hikes were implemented: first, last February 10 (diesel by P1.90 and gasoline by P2.40), then again immediately on the 17th  (by another P1.50 hike in diesel and P1.15 in gasoline), with the latest increase announced just last February 24 (P0.70 for diesel and P0.90 for gasoline), effectively putting up diesel prices by a total of P4.10 and gasoline by P4.45.

What is so ironic is that these successive price increases are happening amid a general slump in global oil prices; with crude oil prices in the international market on a generally downward spiral for the past eight months now. Significant to note is that the current price of crude oil (about $52-55 per barrel) is only 50% of its price of $108 per barrel in June 2014. Moreover, according to the International Energy Agency (IEA) and other oil industry experts, crude oil prices will likely continue their downward trend with projected increases reaching only pegged at less than $60 per barrel.

Many sectors have rightfully raised a howl over the oil companies’ claim that increases were due to the rising prices of crude oil in the international market, and the fact that, even should there be any momentary spike in prices, their oil stocks had nevertheless been purchased early on at cheaper prices.

Adding salt to the wound is how forthrightly these local players in the petroleum sector have used the line that the rise in pump prices is influenced by the world market, and how trigger happy they have been in imposing fuel hikes every time “upward movements” are experienced in global oil rates while simultaneously being so resistant and conservative in implementing rollbacks when the oil prices go down.

For this reason we have constantly been pushing that a more responsive system of determining the actual cost of fuel so that we can have a more transparent understanding of the true basis for our local prices. Determining the actual cost is important because if gasoline is imported at, say, PX per liter and retailed here at PY per liter, then the oil companies will have to justify that the difference between X and Y does not mean there are  overpricing and profiteering.

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Just to simplify things, during the time when the global oil market price was going at $110, our local gasoline prices were already pushing roughly about P55 per liter. Using this as a baseline, proportionately therefore, with current global oil prices hitting $48-50 per barrel consumers ought to be buying gasoline at not more than about P30 per liter at this point in time.

Consequently, during the time when similar successive rate increases were experienced in 2012, the IEA came out with a study that $29 to $43 per barrel was the estimated amount needed to produce a barrel of crude oil. Accordingly, EIA data showed that the cost for exploration and development is about $6.99 to $18.31 a barrel while the cost of the operation and maintenance of wells was about $5.75 to $8.26 a barrel. The EIA also said that royalties is just about 14% of the selling price. Using the same 2012 prices this puts the difference between the published price of Dubai crude and the estimated needed amount to produce a barrel of crude oil at about $73 to $87 per barrel.

Understanding this, we can get a good estimate of the profits raked in through monopoly pricing and speculation by the big-time players in the local and international sectors.

In line with this, we would like to impress the fact that there is no shortage of proposals particularly within the House of Representatives regarding the problem of the soaring oil prices and alleged abuses committed by profit-greedy oil companies. For this reason, it is high time that a responsive and transparent formula that truly reflects the consequent relationship between local and world market fuel prices be put in place through the joint efforts of the DOE and Congress, together with efforts to initiate reforms in the downstream oil industry.

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