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

Volume 2, Number 31              September 8 - 14,  2002            Quezon City, Philippines







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Analysis
P0.53 Rollback Still Possible - Despite Uptrend in World Crude Prices  

In 2000, oil firms overpriced their products by P2.64 per liter. These substantially negate the underpricing in 2001 and the first eight months of 2002 which reached P2.11 per liter. The difference (P0.53 per liter) should be reflected as a rollback in pump prices, if only to correct the injustice committed two years ago. 

By DANILO ARAÑA ARAO
Bulatlat.com 

Instead of increasing pump prices early this month, oil companies should have rolled back petroleum products by as much as P0.53 per liter. 

Despite the continuous increase in Dubai crude prices from $18.43 in January to $25.24 in August, the reported under-recoveries of oil companies this year are more than offset by their profiteering since January 2000. 

Bulatlat.com computations show that for the year 2000, oil firms overpriced their products by P2.64 per liter. These substantially negate the underpricing in 2001 and the first eight months of 2002 which reached P2.11 per liter. The difference (P0.53 per liter) should be reflected as a rollback in pump prices, if only to correct the injustice two years ago. (See Table 1) 

In the computation of estimated profiteering, Bulatlat.com used the industry rule of thumb (ROT) for the years 2000, 2001 and 2002 to relate the fluctuations in Dubai crude prices and exchange rate to the price adjustments made by oil companies. 

As regards the rule of thumb for the year 2000, the Department of Energy (DoE) estimated that there should be a P0.35 per liter oil price hike (or rollback) for every $1 increase (or decrease) in Dubai crude prices. In addition, every one-peso fluctuation in the peso per US dollar exchange rate should warrant a P0.20 rollback (in the event of peso appreciation) or increase (in the event of peso depreciation). 

For 2001 and 2002 (first eight months only), Bulatlat.com computed the ROT at 42 centavos for every $1 increase or decrease in Dubai crude prices, and 19 centavos for every P1 appreciation or depreciation of the exchange rate.

Benchmark 

The rule of thumb is used as a benchmark for indicative prices of petroleum products. Indicative prices refer to estimates of pump prices based on the changes in Dubai crude prices and the peso per US dollar exchange rate at a given time. 

The rule of thumb may be computed at a given time by making constant the variables in the pricing formula and then alternately adding one dollar to the Dubai crude prices and one peso to the exchange rate. Bulatlat.com's computation of the rule of thumb from January to August 2002 may be seen in Table 2. 

The values for crude oil (Item A) and the peso-dollar exchange rate (Item D) are based on their respective averages from January to August 2002. The 3% tariff on crude oil is imposed as a result of Republic Act No. 8479 which deregulated the downstream oil industry in 1998. The P1.58 per liter specific tax, on the other hand, is due to Republic Act No. 8184 which restructured the taxes on petroleum products. The 15% gross margin of oil companies and the 10% dealer's mark-up are based on Petron, Shell and Caltex's claim that they only peg such a percentage as gross margin and mark-up for dealers for every liter of petroleum product that they sell. 

Dubai crude was used as a benchmark because the local oil industry normally procures oil from the Middle East. Although not all industry players get crude directly from Dubai, no less than the DoE acknowledged that prices are not substantially different from Dubai's. Bulatlat.com

 

Table 1
Estimated Profiteering of Oil Companies
2000 to 2002 (in peso per liter)

 

Overpricing/(Underpricing)

Jan -Dec 2000

2.64

Jan-Dec 2001

(0.19)

Jan-Aug 2002

(1.92)

PROFITEERING PER LITER

0.53

Bulatlat.com computations based on DOE and BSP data

 

 

Table 2
Bulatlat.com Estimates of Downstream 
Oil Industry Rule of Thumb
January to August 2002

VARIABLES

CONSTANT

SCENARIOS

Add: $1 to price of crude oil

Add: P1 to peso-dollar exchange rate

 

1

2

3

A. Crude oil in US$/barrel

22.88

23.88

22.88

B. Ad valorem tax (3%) in $

0.69

0.72

0.69

C. Subtotal 1 (A + B)

23.57

24.60

23.57

D. Peso-Dollar Exchange Rate

50.93

50.93

51.93

E. Crude Oil in PhP/barrel

1,200.24

1,252.69

1,223.80

F. Per liter computation (E / 159 liters)

7.55

7.88

7.70

G. Specific tax

1.58

1.58

1.58

H. Subtotal 2 (F + G)

9.13

9.46

9.28

I. 15% gross margin

1.37

1.42

1.39

J. Subtotal 3 (H + I)

10.50

10.88

10.67

K. 10% dealer’s mark-up

1.05

1.09

1.07

L. Pump Price (J + K)

11.55

11.97

11.74

M. Rule of Thumb

 

0.42

0.19

(L2–L1)

(L3-L1)

 


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