“There should be bigger rollbacks this month” Despite “big-time” rollback, oil products still hugely overpriced – Bayan
November 6, 2008

Multisectoral alliance Bagong Alyansang Makabayan (Bayan) today revealed that based on its updated study, petroleum products in the country are still hugely overpriced despite the recent supposedly “big-time” price rollbacks implemented by the oil companies.

The group said that as of end-October, diesel is still overpriced by around P8.05 per liter; kerosene, P12.09; gasoline products, P6.05; and liquefied petroleum gas (LPG), P11.61 per 11-kilogram (kg) cylinder tank.

“This means that the oil firms still owe consumers more and bigger rollbacks this month. We demand that they implement a single big-time rollback by the said amounts and not through installments as what they did in October and in the past months. Global prices continue to decline and the more they delay corresponding reductions in local pump prices, the more consumers are exploited through exorbitant prices”, Bayan secretary-general Renato Reyes Jr. said.

Bayan said the situation underscores one of the most fundamental defects of the Oil Deregulation Law wherein oil firms are allowed to adjust pump prices at whim at the expense of the consumers. “Clearly, deregulation has only given more opportunities for the oil companies to exploit and abuse the people. All the supposed admonition by Malacañang of the abusive pricing of the oil firms is meaningless if policies that will effectively regulate the oil industry, including pricing, are lacking,” said Reyes. He added that under deregulation, fair and reasonable oil prices are never possible.

The Bayan study looked at the monthly changes in the levels of Dubai crude and foreign exchange (forex) from January to October (Oct 1-28 average, latest available data at the time of the study) to determine whether local price adjustments approximate the movement in global prices. It used a simulated formula (“rule of thumb”) that one major oil firm uses in determining the impact on local prices of Dubai crude and forex movement. The results are then compared to the actual price movements implemented by the oil firms since the start of year to estimate if there is an overpricing.

As of October 1-28, Dubai crude averaged $69.12 a barrel (bbl), from $95.90 in September and a peak monthly average of $131.27 in July. It started at $87.37 a bbl in January this year. Meanwhile, forex averaged P47.94 per US dollar in October, from P46.76 in September.

So far, the biggest single rollback in pump prices implemented by oil companies happened on October 31 when they reduced the price of diesel by P5 per liter and kerosene and gasoline products by P2 per liter. This was followed by a P44 reduction in the retail price of an 11-kg LPG tank on November 4. The moves came amid persistent demand from the public for the oil firms to implement a “big-time” rollback to reflect rapidly declining global oil prices.

But based on Bayan’s study, it appears that the price rollbacks in October only reflected that month’s ideal price reduction for diesel (i.e. P8.52 vs. actual total rollback of P8 a liter). For kerosene and gasoline products, the price rollbacks in October are P3.52 per liter short of the ideal price reductions for the said month. The oil firms’ over-recoveries in October plus their over-recoveries in the previous months comprise the current net overpricing that they must immediately offset through a one-time, big-time rollback.

Bayan also emphasized that its estimated oil “overpricing” at the pump stations is just the small, small tip of a huge, huge iceberg. It does not represent the super-profits that the giant transnational corporations (TNCs) like Shell and Chevron accumulate through monopoly pricing as a result of their overwhelming control of the global upstream and downstream oil industry. (END)