Mayor wants lower pump prices, but OPEC slashes oil output

ZAMBOANGA MAYOR Beng Climaco has asked the Department of Energy (DoE) to look into the high prices of fuel here following the series of price adjustments in recent weeks.

Climaco said DoE Secretary Alfonso Cusi responded to her call and told her that “we will look into this mayor.”

The mayor said she also sought the help of Rodolfo Joselito Bautista, the Cabinet Officer for Regional Development and Security for Region 9; and Cabinet Secretary Karlo Nograles in light of the exorbitant fuel prices here now at over P67 per liter. 

She said Bautista promised to bring the matter to the attention of the Cabinet and find a solution to the problem affecting the business sector and drivers of utility vehicles, especially this time of the health crisis. 

Amend law 

Cusi, in a statement, said the DoE is now asking Congress to amend the Oil Deregulation Law to provide a framework for the government to intervene and address sudden, prolonged oil price spikes, including the unbundling of the cost of petroleum retail products to determine their true and passed-on costs.

In a letter addressed to the Committee on Energy Chairmen Senator Sherwin Gatchalian and Representative Juan Miguel Arroyo, Cusi said the DoE mentioned several reasons on the prolonged oil price spike due to a continuing rise in world market prices resulting from the sudden global increase in demand and an unanticipated lack of supply.

He said the demand, which is estimated at 103.22 million barrels a day, is attributed to the following:
 
(1) the surge of economic activities due to the containment of Covid-19 as a result of measures adopted and implemented worldwide  (i.e. mass vaccination, control of the Delta and other variants, Europe's "no-lockdown" policy, and China's economic boost). This led to a sudden demand in energy utilization, including the demand on oil products in the transportation sector like gasoline and diesel;
 
(2) the stocking of petroleum products' inventories as winter approaches to cover demand from October this year to March of next year, with stocking expected until February 2021;
 
(3) slowed production due to the current global direction of sourcing energy from low-carbon emitting sources. This has limited the optimum level of production, causing the halt and event withdrawal of investments in the development and expansion of the fossil fuel industry;
 
(4) International sanctions to oil-producing countries like Iran and Venezuela that stopped the drilling of oil companies and the buying of oil products from these countries;
 
(5) Hurricane Ida a category 4 storm that hit the US gulf coast on August 29 had caused an estimated loss of US crude oil production by as much as 30 million barrels.

Before the pandemic, the latest recorded total worldwide supply is, more or less, 104 barrels a day. To cope-up with the supply, the Organization of Petroleum Exporting Countries (OPEC) committed to increase the production and supply of crude oil by 400,000 barrels per day.

Cusi said the Philippines utilizes the equivalent of 425,000 barrels per day, which is around 0.4% of the world supply.

“The DOE has also met with the oil industry stakeholders to ensure supply while the problem persists, and asked if discounts could be extended to the public, especially to the public transport sector. Supply was assured and some companies (e.g. Jetti, Seaoil, Shell, Phoenix, Unioil) agreed to extend discounts to the public transport industry on top of existing discounts currently given like vaccination and loyalty incentives,” Cusi’s statement said.
 
Aside from the DoE’s immediate response, a Whole-of-Government Approach and medium and long-term policy directions were also taken in consideration of this matter. The DOE required the unbundling of the cost of retail products to determine their true and passed-on cost. 

The DOE maintains that the unbundling of oil prices would result in greater market transparency by establishing the trends in the prices of oil and finished petroleum products. This, in turn, would help ensure a level playing field within the oil industry, while upholding the best interests of consumers.

OPEC

Pump prices have gone up, not only in the Philippines but around the world and even US President Joe Biden has blamed the current high oil prices on OPEC withholding supply.

The Associated Press also reported that oil prices jumped after OPEC and allied oil producing countries stayed with their gradual approach to restoring output slashed during the pandemic, agreeing to add only 400,000 barrels per day in November.

The decision by the Vienna-based oil cartel along with non-members including Russia tracks with its established schedule of adding back that amount of oil every month until deep cuts made in 2020 to support prices during the depth of the pandemic recession are restored next year. 

The situation has changed since then as the global economy recovers. The decision comes amid stronger demand for oil products like gasoline and jet fuel, as driving and flying pick up around the globe due to the easing of restrictions aimed at containing the pandemic. 

On top of that, unusually high prices for natural gas are pushing some electricity producers in Asia to switch from natural gas to oil-based products, helping support prices. (Zamboanga Post)