MANILA, Philippines — Oil companies in the country again announced large cuts in pump prices, this time P1.20 per liter of gasoline and 75 centavos per liter of diesel, as international prices are plunging amid concern that a price war among producers could lead to a global economy, weakened by the new coronavirus disease (COVID-19), awash in crude.
Phoenix Petroleum was the first to lower prices, implementing cuts on Saturday.
Pilipinas Shell, Seaoil Philippines, Total Philippines and PTT Philippines followed suit on Tuesday morning.
Shell and Seaoil also slashed prices of kerosene by P1.05 per liter.
Six diesel price cuts
Since late January, amid reports of the rapid spread of the coronavirus in China, pump prices of diesel in the Philippines have gone down six times for a total of P5.25 per liter.
Pump prices of gasoline went down five times for a total of P4.15 per liter.
Based on monitoring by the Department of Energy, the price of diesel in Metro Manila is now between P35.30 and P45.17 per liter. For gasoline, the price ranges from P43.22 per liter to P58.93 per liter.
Demand for energy is falling as people cut back on travel. The worry is that the virus will slow economies sharply, which means even less demand.
Dubai crude at $33.41/barrel
Spot prices of Dubai crude, the bellwether for Asian markets including the Philippines, stood at $33.41 per barrel as of press time—a 25-percent plunge from $44.54 per barrel the previous trading day on March 5.
Brent crude, the international standard, lost $11.44, or 25.3 percent, to $33.83 per barrel in electronic trading in London.
Benchmark US crude fell $10.77, or 26.1 percent, to $30.49.
The dramatic losses follow a 10.1-percent drop for US oil on Friday, which was its biggest loss in more than five years.
Prices are falling as Saudi Arabia, Russia and other oil-producing countries argue how much to cut production in order to prop up prices.
Expected to benefit from a price war between Russia and Saudi Arabia are users of oil products, such as the transport sector, electricity generation companies, asphalt manufacturers, road builders and food businesses.
Also expected to benefit are manufacturers of chemical and plastic products and other synthetic materials that are derived from oil and are present in almost everything that people use.
Lower income
The crash in oil prices, however, is expected to weigh down an oil company’s bottom line.
In 2018 when a global supply glut was pushing prices downward, Petron Corp. saw its net profit fall 50 percent to P7.1 billion.
Petron reported a mere 0.6-percent growth in sales volume, from 107.8 million barrels in 2017 to 108.5 million barrels in 2018.
Similarly, Pilipinas Shell—the only other crude oil refiner in the Philippines—reported a net income of P5.1 billion, barely half of the P10.4 billion recorded in 2017.
Shell said that while its refinery business recorded the best performance in five years, this was dampened by the sudden drop in crude prices in the fourth quarter of 2018 and by depressed refining margins.
Share prices also plunge
The turmoil in the oil markets caused share prices to plunge in the United States, Europe, the Middle East and in Asia.
In the Philippines, share prices declined 6.76 percent on Monday, the worst single-day decline since the 2008 financial crisis. (See story in Business, Page B1.)
While lower oil prices can be a boon for economies that rely heavily on imports to fuel their industries, such as South Korea, Japan and China, extreme uncertainty can wreak havoc.
Stephen Innes, chief markets strategist at AxiCorp, called reports that Saudi Arabia could increase its oil production in order to gain market share in a “shock-and-awe†strategy.
The oil market has seen arguments like this before.
In 2014, the Organization of the Petroleum Exporting Countries held off production cuts in order to hold onto market share in the face of a resurgent US oil industry. That led oil to tumble from over $100 a barrel to below $40 by 2015.—With a report from AP