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Americans’ consumption affects oil prices in Philippines


Amid weeks of consecutive hikes in oil prices, Energy Secretary Jericho Petilla told The Manila Times that the reduction in oil price can only be dependent in a slump of the United States economy, among other global factors.

Petilla said that the main factors that primarily led to the recent price hikes on petroleum products (diesel and fuel) are the activities happening in the US economy and other major regions like Europe. He added that if the US economy declines, there could be a huge chance that oil prices in the Philippines would be reduced.

He explained that if the US economy declines, the demand for oil in US would decrease, and if that happens, there would be an oversupply of oil, which would translate to a reduction in oil prices in many countries including the Philippines.

“Kapag ang world market, kapag pataas, pataas din tayo. Ang kinukwestiyon lang dito kung consistent, pag tumaas tumataas ng sobra, kapag bumababa, hindi ganun bumababa. [If the price in the world market goes up, then our price goes up as well. The only question here is if it’s consistent. Some people would say if the prices goes up, it goes really high and if it goes down, the reduction is just a bit],” Petilla said.

He reiterated that oil prices in the Philippines clearly depends on the appetite of the world market, with the biggest oil consumers being the US, Russia, China and Europe.

“Makikita mo na kung ang America, magpa­hinga ng konti, may oversupply agad, kapag ku­ma­iin, makikita mo ang laki na kaagad ng ita­nataas ng oil price [You will see that if America takes a break from consuming so much oil, there would instantly be an oversupply. If they consume so much oil as usual, you would instantly see a huge increase in oil price],” he said.

Petilla also specified that another factor that affects oil price is the situation in the Middle East.

“Second is you have to look at the supply root. Galing sa Egypt ang oil natin. Kapag magulo ang sitwasyon sa Syria, malaki rin ang possibility na maapektuhan ang oil price natin [Our oil mostly comes from Egypt. If the situation in Syria turns chaotic again, there’s a huge possibility as well that our oil price will be affected as well],” he said.

“Price-taker lang tayo. 100-percent imported lahat, so kung ikaw oil company, susunod ka lang. [The Philippines is just a price-taker. We import 100 percent of our oil, so if you are an oil firm, you just follow the prices],” Petilla added.

Asked if the Department of Energy is seeing a looming oil price increase, Petilla said that he is in full watch of the situation in major economies as well as the situation in Syria.

Price spikes fair
Meanwhile, an economist from the University of the Philippines said that the successive oil price hikes that the Philippines is experiencing is fair and economically sound.

“Domestic oil product prices fluctuate in response to world oil product price fluctuations,” prof. Benjamin Diokno stated in a text message.

He noted that it would seem that price changes are frequent because oil firms are free to reflect world price changes on weekly basis.

“That’s fair and economically sound. Frequent adjustment prevents large price swings in the future,” he said.

When asked if there is a basis for such hikes, Diokno replied that pump prices adjust on the basis of the oil firms’ most recent acquisition costs and not on historical costs.

“That’s how business works. The basis is the replacement costs of commodities,” he further said.

The UP professor also mentioned that since there are only two oil refiners in the country today and the rest of the players are traders, the turnover is brisk. As a result, the weekly adjustment of prices is now the norm.

The Philippines’ two oil refiners—Petron Corp. and Pilipinas Shell Petroleum Corp.—import their crude supply mostly from the Middle East.

The two corner roughly two-thirds of the local oil market, the rest of which are controlled by importers of finished petroleum products, primarily diesel and gasoline.

Other oil players in the country are Chevron Philippines, Eastern Petroleum Philippines, Total Philippines and Flying V Philippines.

For his part, former National Economic and Development Authority Director General Cayetano Paderanga Jr. said that it is not simple to model the pricing decisions of oil firms.

“Cost structures, delivery periods, production cycles and marketing strategies are complex and differ from firm to firm,” he stated.

In terms of inflation, Paderanga noted that the impact of oil price hikes depends on how producers and consumers react to changes in oil price.

“Impact on GDP [gross domestic product] would be worse if we tried extraordinary interventions in the supply chain,” he added.

An official of an oil firm in the Philippines also defended the recent price hikes.

In an interview, Phoenix Petroleum spokesman Raymond Zorilla said that they are practicing transparency in the prices of their products.

“We observe transparency in pricing as much as possible on a weekly basis to reflect movements in oil prices in the world market,” Zorilla said.

“The same holds true most especially when we have sufficient stocks but prices in the world market decline then we have no other recourse except to sell at such lower price even when acquisition costs were higher,” he added.

Furthermore, Zorilla said that Phoenix Petroleum refreshes its stocks weekly.

“We have very limited resources, but we try to maintain fairness [on the prices],” he said.

Asked if refiners or importers are more prone to changes in the prices of oil in the world markets, he said: “crude oil and finished products are differently priced and depends on demand.”

For her part, UNA senatorial candidate Ma. Milagros “Mitos” Magsaysay expressed the need to review the oil deregulation law.

“It is important that existing laws are reviewed before new ones are passed and this is a classic example of it. The Oil Deregulation Act has been allowing oil companies to raise oil prices unchecked for many years, with the government powerless to stop them,” Magsaysay said.

5 Comments on "Americans’ consumption affects oil prices in Philippines"

  1. BillT on Sat, 23rd Feb 2013 4:44 am 

    And the beat goes on, even here in Manila. Gas has bounced between $ 4.70 to $5.30 per gallon over the last five years that I have lived here. Today, it is $5.00 per gallon at the local station. Diesel is about $1.00 less.

    Here a laborer makes $1.25 per hour vs the US minimum of $7.50. To be equal, the cost of a gallon of gas in the US would be $25.00. Are you still whining, Americans?

  2. DC on Sat, 23rd Feb 2013 5:09 am 

    That politician sounds convinved that the slow-mo contraction in the US of Wall-Mart. = cheaper gas for his country.

    Maybe something like that might happen, but he shouldnt count on it.

    And its not just because of China, even if China didnt exist, Peak oil and declining net energy would still be pushing back against a recessionary price drop. Yes, the price *might* drop over the short term, but stagnant world production will keep pushing back in the other direction.

  3. Ken300 on Sat, 23rd Feb 2013 5:48 am 

    The US and Europe are reducing their oil imports, pollution and emissions.

    China and India and their billion plus populations are the driving force in oil prices. Their economies are growing from 6-8% a year. That is a lot more oil they are using every year.

    China and India will be the driving factor on Climate Change. They both have indicated that they want to shift to safe clean alternative energy sources and alternative fueled vehicles and have started to do so.
    They have a long way to go but if they are successful they can leap frog to electric and hybrid vehicles and away from fossil fuels. We shall see if they can be successful.

    They both need to stop building any more coal fired power plants if we are to slow the impact of climate change. So far that is not happening.

    As for the Philippines — every country needs to develop a plan to balance its population with its resources, food, water, energy and jobs……..

  4. BillT on Sat, 23rd Feb 2013 7:26 am 

    Ken, the US still pollutes more per person than any other country in the world. Much more. We still use more coal per person also. If you ramped the US population up to that of China, WE would be the ones with face masks and smog. We let them make most of our junk. If we bring those jobs back home, we bring the problems with them. Thank about that before you point an accusing finger.

  5. Dmyers on Sat, 23rd Feb 2013 2:54 pm 

    Right or wrong, Petilla’s point is well taken. It’s always good to point out America’s hoggish practices with energy, as a matter of perspective. BillT, resident reporter in the Philippines, makes some good points on that aspect in his comment at 7:26 am.

    From the comments above and giving a little thought to the matter, the price driver is complicated and multifaceted. Supply is maxed out, not elastic. The dollar is losing value, implicitly if not explicitly. Newer oil in the market is more expensive to produce than so-called conventional oil, and as economists say, “[P]rices are sticky downward.” By no means an exhaustive list, these are some observations of a simple minded generalist

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