Bu-lat-lat (boo-lat-lat) verb: to search, probe, investigate, inquire; to unearth facts

Issue No. 37                       October 28 - November 3,  2001                Quezon City, Philippines

Oil Prices Could Still be Rolled Back by P3.13 Per Liter

Why is it that despite the recent reduction in oil prices, there is no consequent decrease in the prices of goods and services? To know the truth, one needs to look at the historical movement of oil prices as well the rudiments of the recent rollback in the prices of petroleum products.

BY DANILO ARAÑA ARAO
Bulatlat.com

Oil companies announced last October 25 a rollback in oil prices ranging from P0.20 to P0.35 ($0.0038 - $0.0067) per liter.

The good news for consumers is that a substantial rollback is still possible based on Bulatlat.com computations. The bad news, however, is the oil firms’ ardent refusal to do so.

It may be recalled that Petron took the lead last Thursday in rolling back oil prices, slashing the cost of its unleaded gasoline by P0.30 ($0.0058) per liter and of diesel and kerosene by P0.20 ($0.0038) per liter effective midnight of October 26. Other industry players are expected to follow suit. One of them, Flying V, already cut gasoline prices by P0.35 ($0.0067), while prices of diesel and kerosene were rolled back by P0.20.

Dubai crude prices were pegged at $19.44 per barrel as of October 24, a substantial decline from the September price of $24.12 per barrel. The peso-dollar exchange rate has ranged from P51 to P52 per US dollar since August this year.

The rollback is the second this month because oil firms slashed prices between P0.21 ($0.0040) to P0.35 ($0.0067) per liter last October 11.

Based on a weighted average, Bulatlat.com computations show that these two rollbacks only mean an average reduction of P0.17 ($0.0033) per liter. This is because unleaded gasoline and kerosene, which had the biggest rollback, only account for 3.7% and 4.0% of petroleum sales, respectively. Diesel, which had the least rollback, comprises 32.1% of total petroleum sales.

This simply means that for a rollback to be meaningful, the petroleum products that are consumed most should be substantially reduced too. Socially sensitive products like diesel, liquefied petroleum gas (LPG), kerosene, regular gasoline and fuel oil account for 81% of total petroleum sales.

Inconsequential

While there was a rollback in diesel and kerosene prices, the reductions were inconsequential compared to unleaded gasoline. In the case of LPG, regular gasoline and fuel oil, their prices have hardly been reduced this year.

While Petron claims that there may still be a rollback next month, the recent minuscule reduction in petroleum prices this month as well as in August (i.e., by a weighted average of only eight centavos per liter) cannot offset the profiteering of oil companies since last year.

Bulatlat.com computations show that petroleum products have been overpriced by P3.13 ($0.0601) per liter since last year. This situation resulted in additional profit for oil companies amounting to P6.9 billion or $0.1325 billion (i.e., P5.7 billion in 2000 and P1.2 billion during the first 10 months of 2001).

Of the total estimated additional profit, Petron got the lion’s share of P2.5 billion ($0.0480 billion), while Shell and Caltex pocketed P2.4 billion ($0.0461 billion) and P1.4 billion ($0.0269 billion), respectively. Other industry players collectively earned an additional P608 million ($11.6833 million).

Based on the given data, petroleum products therefore may still be rolled back by P3.13 ($0.0601) per liter more in order to offset previous additional earnings due to profiteering.

Profiteering

Bulatlat.com’s estimated profiteering is based on the industry rule of thumb that a $1 fluctuation in world crude prices results in a P0.35 ($0.0067) adjustment in pump prices and that every P1 movement in the peso-dollar exchange rate translates to a P0.20 ($0.0038) increase (in case of peso devaluation) or decrease (in case of peso appreciation) in pump prices.

In a period of deregulation where pump prices are determined by the oil firms, the industry rule of thumb serves as a benchmark in approximating the “reasonableness” of price adjustments based on the movement of world crude prices and the peso-dollar exchange rate.

Analyzing the movement of petroleum products from 1996 to 2000, data from the Department of Energy (DOE) show that pump prices increased by P8.01 ($0.1539) on the average.

The prices of diesel and fuel oil (which is used to generate electricity) which both comprise 63% of total petroleum increased by as much as P7.21 ($0.1385) and P9.01 ($0.1731) per liter, respectively. Premium and unleaded gasoline had the biggest price hikes of P9.57 ($0.1839) and P9.03 ($0.1735) per liter, respectively.

Other petroleum products saw the following increases in prices per liter: regular gasoline, P8.55 ($0.1643); aviation turbo, P4.55 ($0.0874); kerosene, P6.76 ($0.1299); and LPG, P5.33 ($0.1024).

These data explain the current situation of rollbacks not being substantial enough to effect decreases in the prices of basic goods and services.

Above all, the oil giants’ public relations departments must explain whether, as some critics aver, aside from manipulating the oil prices they could also be manipulating the consumers’ mind. Bulatlat.com

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