THE DEPARTMENT of Energy (DoE) has failed to address the spike in fuel prices not only in Zamboanga City, but in the entire country and cited the global demand and limited supply after the Organization of the Petroleum Exporting Countries (OPEC) slashed its output the past months.
Mayor Beng Climaco has repeatedly asked the DoE for help after the business sector and transport groups complained about the successive increases in pump prices. “The pandemic surge plus the increase of fuel cost is really going to be a burden to our residents. Ang gobyerno po ay handang gawin kung ano ang dapat para makatulong sa mga transport sector at sa ating mga mamamayan,” Climaco said during a virtual meeting with the DoE.
But Rino Abad, the head of the DoE’s Oil Industry Management Bureau, emphasized that while global oil prices have continuously surged since the start of this year, local issues such as freight costs and a high industry intake may have also contributed to the high costs of oil prices in Zamboanga.
He said the increase in fuel prices was largely due to the global demand and supply of oil products which is controlled and restricted by OPEC, as well as import costs and fees. “It’s not only happening in Zamboanga City, it’s happening everywhere in the Philippines and the global arena. This is actually an increasing trend,” Abad explained.
He said the high cost of freight, on the other hand, can be due to the lack of an import terminal or oil depots and other fuels and petrochemical products in Zamboanga City which leads to a significant spike in transhipment costs and this has to be accounted for.
Abad also noted that the city’s industry take – which refers to operating costs throughout the downstream oil industry chain plus profit of oil companies and retailers – is high at P12.82.
“It must be noted that the local cost of doing business may also be reviewed with the retailers to justify the remaining differential cost,” Abad said, adding that “it is important to unbundle the industry take with local retailers as well as delve deeper into market competitiveness among the players.
Abad said the local government should convene its economic cluster to meet with major oil companies and propose the establishment of a direct import terminal in Zamboanga City and to hold a business meeting with local outlets and retailers and to engage with the Philippine Competition Commission.
Climaco said she directed a team to act on the recommendations of the DoE to address the local concerns.
DoE Secretary Alfonso Cusi, in a statement,
said they have asked 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 (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.
Climaco said the local government is also
supporting Cusi’s call to amend the Oil Deregulation Law to better manage
and respond to price spikes.
Oil cartels
With the skyrocketing pump prices, even US
President Joe Biden blamed OPEC for withholding supply. 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)
