Diesel price cut reversed; oil players urge shift from OPEC to cheaper suppliers

07/27/2008

Oil companies raised diesel prices by P1.50 per liter yesterday, which in effect recouped a P1.50 rollback in prices last Sunday, following President Arroyo’s meeting with oil company officials.

Total Philippines and Pilipinas Shell Petroleum Corp. said prices of diesel and kerosene were raised by P1.50 per liter starting 6 a.m. yesterday.

Petron Corp., Chevron Philippines and other smaller oil distributors had not announced any price increases at press time.

Last July 18, oil companies announced a P3 increase in the price of diesel aside from the regular P1.50 weekly increase in the price of other oil products.

The increase came on the same day the Social Weather Station (SWS) released the results of a survey showing President Arroyo’s net satisfaction rating plunging to negative 38, the worst ever for a Philippine president since the SWS began its periodic surveys at the start of the administration of President Corazon Aquino in 1986.

Mrs. Arroyo called a meeting with oil company executives on the evening of Saturday, July 19, and of prices were rolled back July 20.

Department of Energy monitoring of local prices as of July 21 showed diesel products priced at P55.98 to P57.97 per liter; kerosene, P59.41 to P63.30; unleaded gasoline, P59.10 to P61.57; and liquefied petroleum gas, 645 to P702.30 per 11-kilogram cylinder.

Flying V chairman Ramon Villavicencio had said that after August 3, the oil firm would determine if there would be a need to continue price increases amid the falling prices of crude oil in the world market.

Crude oil prices resumed their slide and settled below $124 per barrel last Friday on falling fuel demand caused by a slow economy and a supply increase from Organization of Petroleum Exporting Countries (OPEC) countries.

Light, sweet crude for September delivery dropped $2.23 to settle at $123.26 a barrel on the New York Mercantile Exchange. Futures touched $122.50 a barrel during the trading session, the lowest intraday price since June 5. The price has tumbled more than 24 dollars since the all-time peak of $147.27 a barrel was achieved on July 11.

The US Energy Department’s report this week showed that the American domestic fuel demand dropped to its lowest point since January 2007 with an average 19.9 million barrels a day, signaling that the weak economy and high energy prices have curbed demand.

The OPEC will produce 32.9 million barrels a day in July, 200,000 barrels higher than the June output, according to preliminary estimates from an oil industry consultancy PetroLogistics Ltd.

The dollar’s strengthening against the euro on Friday also helped to bring down the crude oil price.

In London, Brent crude for September delivery fell $1.92 to settle at $124.52 a barrel on the ICE Futures Exchange.

The Arroyo government must explore new sources of precious oil to stop the skyrocketing prices of the commodity sold by the big three companies in the country, sources in the oil industry said yesterday, adding that there is no sense for the country to continue to buy oil from OPEC if there are other players in the market that offer cheap oil on a long-term basis.

A copy of a contract secured by the Tribune yesterday showed that a company operating in a big Asian trading center had already sold cheaper Russian oil to another Asian country at $450 per metric ton at the rate of 3.5 million metric tons (MMT) per month.

The contract, signed in August 2007, was effective for one year.

A similar contract covered the supply of bunker fuel needed by power companies and factories. The price quoted was $370 per metric ton for the contracted volume of 3.5 MMT per month for one year.

These contracts also included the amount of $5 per ton to be paid out to authorized brokers, some of them Filipinos.

At those contracted prices, industry sources said the pump prices of diesel and gas would be reduced by at least P22 per liter, giving consumers a big break from the recurrent increases in oil prices.

There had been 20 price increases since January 2007 and the latest P3-per-liter increase was the steepest since 1990.

If the Philippine oil industry were to import crude oil from sources other than OPEC members, industry players said the cost of power would be reduced substantially.

In spite of the operation of the Oil Deregulation Law, the government had not compelled the oil companies to buy for the long-term and secure their commodity from non-OPEC members.

The practice of these companies had been to source their oil from their mother companies and their Middle Eastern partners even if the market price is skyrocketing on account of the huge purchases by the United States through international brokers to beef up its stockpile before winter.

The US is the world’s biggest oil consumer, accounting for 40 percent of the entire global demand. It also consumes 30 percent of the world’s coal.

Local pump prices are overpriced by at least P12 per liter, according to a study conducted by Ibon Foundation, while Cebu Rep. Eduardo Gullas claimed that since oil deregulation was approved in 1998, Petron and Pilipinas Shell have accumulated P70 billion in net profits.

Oil firms still want to recover up to P7 billion from consumers, claiming foreign exchange losses. Ibon Foundation revealed that in 2007, the top three oil companies earned combined profits of P62-billion. Gerry Baldo

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