No reason to hike oil prices: Oil Products Overpriced by P0.16/Liter

There is no basis in the plan of oil firms to again hike the prices of their petroleum products in spite of the uptrend in world oil prices. Oil companies in the country have overpriced their products by around 16 centavos per liter from January to May this year.

By IBON Foundation
Bulatlat.com

There is no basis in the plan of oil firms to again hike the prices of their petroleum products in spite of the uptrend in world oil prices.

Oil companies in the country have overpriced their products by around 16 centavos per liter from January to May this year. Consequently, oil firms earned extra profits of more than P216 million during the said period, of which P194 million went to Petron Corporation, Pilipinas Shell, and Caltex Philippines.

The overpricing estimates are computed using the rule of thumb based on the movement of Dubai crude price and the peso-US dollar exchange rate. In the first five months of the year, the price of Dubai crude has moved from US$28.87 per barrel in January to US$34.74 last month. On the other hand, the value of the peso against the US dollar weakened from P55.55 to P55.83 during the same period.

Oil companies and the Department of Energy (DoE) dismiss IBON’s estimates as “outdated,” arguing that there are other factors that affect pump prices under a deregulated environment. But when asked to reveal their own computation or formula, the DoE and the oil firms say it is not for “public consumption.”

Moreover, the profiteering estimates of IBON presuppose that petroleum in the world market is justly priced, which is not the case.

IBON estimates show that posted world oil prices (which supposedly represent exploration and production costs, and the royalties paid to oil producing countries) are actually bloated.

Crude oil production in the Organization of Petroleum Exporting Countries (OPEC) only costs between US$7-8 per barrel. On the other hand, based on their 2003 financial reports, Chevron Texaco (which owns Caltex Philippines) spends US$3 per barrel for exploration, and Royal Dutch Shell (which controls Pilipinas Shell), almost US$4 per barrel.

Moreover, according to the US-based Energy Information Administration (EIA), royalties cost around 14% of the posted price. Using the latest Dubai crude (US$34.74 per barrel as of May 2004) as reference, oil producing countries get about US$5 per barrel in royalties.

This means that exploration and production costs plus the royalties range from US$15-17 per barrel, or a difference of US$18-20 per barrel from the latest price of Dubai crude.

The difference between the posted price and the estimated total cost of producing crude oil represents windfall profits for the oil companies.

That crude oil and petroleum products are overpriced belies the claim of oil firms that they have to adjust their pump prices to reflect the uptrend in world crude oil prices.

Recently, oil companies implemented a P1 per liter hike in the pump prices of gasoline, diesel, and kerosene. Such increase represents the single highest increase in petroleum prices since October 2001 when the average retail price went up by P1.20 per liter. It was followed by a P1 per kilogram hike in the prices of liquefied petroleum gas (LPG).

For the record, it is the seventh round of oil price hikes for the year and the 61st since the downstream oil industry was deregulated in April 1996. The unbridled oil price increases plus the price manipulation practiced by big oil companies and its impact on the economy and the people should force government to restudy its deregulation policy and consider at least controlling oil price movement. ()

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