by Nicasio Angelo Agustin
The uncertainty and volatility of the situation in Libya create economic fears and political anxiety around the world. Not long after the start of the uprising, the price of oil and other petroleum products escalated world-wide, except in countries and giant economies which have secure oil supply sources.
In the Philippines, the oil companies quickly took advantage of the situation – as expected – by going along with the world oil price trend. The price of gasoline went up by one peso overnight!
More oil price increases are anticipated if the condition in Libya will not improve anytime soon. There are other countries in the Middle East threatening to follow the examples set by militants in Egypt and Libya clamoring for instant and meaningful reforms, if not outright expuilsion of their tyrannical leaders. Should this scenario escalate into bloody violence, the supply of oil in the world market would be adversely affected. No need to belabor what this ultimately will mean: The price of oil will definitely skyrocket.
Recently, while the Big Three oil companies in the Philippines predicted the looming oil crisis, we heard our President PNoy assuring us that the supply of oil in the country is sufficient with the promise of other oil-producing countries to fill the slack if the situation in North Africa and Middle East does not improve.
This promise of sufficient oil supply is not necessarily a promise of retaining the current level in oil price. These other oil producing countries are willing to supply us if we are willing to pay the price. Our President clarified also that we “have to reconcile having enough and having too much at a high price.” So it is not a promise of a steady supply of oil and other petroleum products after all. There is a strong caveat – if we are willing and able to pay the price!
The President also reportedly assured the public that the government will not control prices and allow the market to operate naturally; meaning, allowing the supply and demand of commodities to determine their price levels. But for the oil and some petroleum products, we need to maintain a 60-day stock for us to continue to allow the market to operate, where the determinants of price would then be the buying and selling rates imposed by these other oil-producing companies. Once the supply is less than the stock inventory required, the government may then have to control the prices so that the level of demand could be regulated.
Given this scenario, the biggest challenge to the country is the guarantee of the 60-day stock inventory. Hence, on Feb. 28, the Department of Energy (DOE) issued a circular that raised the minimum inventory requirements for all companies and bulk suppliers in the Philippines. All oil companies, except refiners, should maintain a minimum inventory equivalent of 15 days supply of petroleum products, excluding liquified petroleum gas, which shall be maintained at seven days supply. Oil refiners, on the other hand, should keep a minimum inventory equivalent to 30 days supply of petroleum crude oil and refined petroleum products, according to the circular.
It is a big challenge not only for the government to manage the market but also for the private sector, particularly the oil companies, to source out their own stock inventory. As of last week, it was reported that the country only has an average oil inventory of 24-25 days which is way below what is required. As of March 2, data showed that Petron Corp. has a 22-day inventory, Pilipinas Shell Petroleum Corp. has 23 days, and Chevron Philippines Inc., 15 days. On crude inventory, Petron has 32 days, and Shell, 15 days. DOE also reported that volume of oil in transit and on the way to Philippine depots is estimated to be 21 days equivalent for crude and three days for petroleum or finished products.
From these figures alone, we can then say that the supply of oil and petroleum products will become a great concern for all Filipinos in the coming months. Our economic drivers – industries and factories – are dependent on these products for their sustained contribution to our economic growth. Both prices and supply of oil would have adverse effects on their operations.
Given these, we need a more specific action agenda of the administration in responding to this challenge – beyond mere rhetorical promises and unfounded, baseless assurances.
Feel free to send your comments to nic_agustin@yahoo.com.
