Bulatlat.com

Oil Firms Claim Losses but Petroleum Products Overpriced by P0.74 Per Liter

Is there basis for the recent oil price hike? Bulatlat.com presents the result of its monitoring of pump prices since January 2000 and consequently exposes the overpricing committed by oil firms through the years which resulted in additional earnings of P1.2 billion.

BY DANILO ARAÑA ARAO
Bulatlat.com

The recent spate of oil price hikes must be analyzed in the context of price movements through the years. (Data from the Department of Energy or DOE show that as of March 20, petroleum products increased by 24 centavos per liter on the average.)

A monitoring by Bulatlat.com of DOE data shows that from January 2000 to March 20, 2002, oil prices have cumulatively increased by P2.44 per liter on the average.

In January 2000, Dubai crude prices were pegged at $23.36 per barrel, gradually decreasing by $22.53 per barrel as of March 20, 2002. The peso-dollar exchange rate was P40.39 per US dollar in January 2000. There was a substantial currency devaluation on March 20, 2002 as the exchange rate was P51.04 per U.S. dollar.

Despite the peso’s devaluation through the years, Bulatlat.com computations show that petroleum products are overpriced by 74 centavos per liter as of March 20 this year, resulting in additional profits for oil companies amounting to P1.2 billion.

This amount serves as oil firms’ additional income as they occasionally seize the opportunity to jack up prices citing either the peso-dollar exchange rate or the Dubai crude price as a reason.

Based on the price movements from January 2000 to March 2002, it is evident that there were instances of underpricing but these were not substantial enough as oil companies managed to profit from the series of overpricing particularly in the year 2000.

In November and December 2000, oil firms overpriced their products by as much as P3.35 per liter. (See Table 1)

Table 1 Estimated Profiteering of Oil Companies (in Philippine peso per liter)
Overpricing / (Underpricing)
Jan 2000	0.09
Feb	(0.28)
Mar	0.55
Apr	0.93
May	(1.57)
June	(0.12)
July	1.07
Aug	(0.38)
Sept	(0.89)
Oct	(0.11)
Nov	0.38
Dec	2.97
Jan 2001	(1.01)
Feb	(0.07)
Mar	0.42
Apr	(0.68)
May	(0.29)
June	(0.23)
July	0.56
Aug	(0.19)
Sept	0.26
Oct	1.02
Nov	0.30
Dec	(0.56)
Jan 2002	(0.32)
Feb	(0.17)
Mar a/	(0.94)
Estimated Profiteering per liter	0.74
Total Estimated Profiteering from 2000 to 2002 (in Philippine Peso)	1,229,374,350.00
Bulatlat.com computations based on Department of Energy (DOE) data a/ data as of March 20 only

Basis of Bulatlat.com Computations

Bulatlat.com used the industry “rule of thumb” for the year 2000 in computing the extent of overpricing or underpricing of oil companies in relation to fluctuations in the prices of Dubai crude oil and the peso-dollar exchange rate.

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 U.S. dollar exchange rate at a given time.

As of the year 2000, there should be a 35-centavo 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 U.S. dollar exchange rate should warrant a 20-centavo rollback (in the event of peso appreciation) or increase (in the event of peso depreciation).

The DOE computes the rule of thumb 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.

The computation of the rule of thumb for the year 2000 may be gleaned from the Table 2 below:

Table 2 Computing the Downstream Oil Industry Rule of Thumb for the Year 2000
VARIABLES	CONSTANT	SCENARIOS
VARIABLES	CONSTANT	ADD: $1 to price of crude oil	ADD: P1 to peso-dollar exchange rate
	1	2	3
A. Crude oil in US$/barrel	26.14	27.14	26.14
B. Ad valorem tax (3%) in $	0.78	0.81	0.78
C. Subtotal 1 (A + B)	26.92	27.95	26.92
D. Peso-Dollar Exchange Rate	44.71	44.71	45.71
E. Crude Oil in PhP/barrel (C x D)	1,203.78	1,249.83	1,230.71
F. Per liter computation (E / 159 liters)	7.57	7.86	7.74
G. Specific tax	1.58	1.58	1.58
H. Subtotal 2 (F + G)	9.15	9.44	9.32
I. 15% gross margin	1.37	1.42	1.40
J. Subtotal 3 (H + I)	10.52	10.86	10.72
K. 10% dealer’s mark-up	1.05	1.09	1.07
L. Pump Price (J + K)	11.58	11.94	11.79
M. Rule of Thumb		0.35 (L2–L1)	0.20 (L3-L1)
Source: Arao, D. A. (2002). The State of the Philippine Downstream Oil Industry (unpublished M.A. thesis). Manila: De La Salle University

The values for crude oil (Item A) and the peso-dollar exchange rate (Item D) are based on their respective averages from January to December 2000. 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 the claim of Petron, Shell and Caltex 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. Bulatlat.com

Editor’s Note: Discussion on the rule of thumb was based on the master's thesis of the author entitled “The State of the Philippine Downstream Oil Industry,” which he defended last March 7 at the College of Liberal Arts of De La Salle University (DLSU).

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