No cap in oil price as world crude surges

MANILA, Philippines—Surging world crude prices further pushed up the cost of fuel in the Philippines, but the Department of Energy (DoE) said it was not inclined to cap prices despite claims that oil firms were engaged in price-gouging.

Energy Secretary Jose Rene Almendras said the DoE would not go back to a regulated oil industry at this time, saying that any moves to cap prices may likely put a heavy financial strain on national government coffers.

Almendras said that for the government to control fuel prices, it should put up an oil price stabilization fund (OPSF), which would require a hefty capitalization of $2 billion.

The amount, he said in a text message, would be used to ensure a 60-day supply inventory for the country.

Almendras said that despite the unrest in the Middle East and North Africa, this was not the time to implement price controls.

“The more important task is to ensure adequate supply and improve inventory as a contingency strategy,” he said. “But if Congress and Senate want (price regulation), we will abide.”

World crude prices surged on Tuesday with Brent crude for April delivery breaching $115 a barrel as the potential for more oil shipment disruptions spread across the Middle East and North Africa.

Gasoline is now retailed at more than P52 a liter and diesel at more than P43 a liter in Metro Manila.

Sen. Ralph Recto on Tuesday said oil firms in the country were exploiting the unrest in the Arab world to raise pump prices way beyond their purchasing cost 55 days ago.

Sen. Juan Miguel Zubiri Wednesday said he would file a bill seeking to impose hefty taxes on windfall profits of oil firms. “They lack political will. I do not know why they are afraid,” he told reporters, referring to energy officials.

Malacañang said the recent oil price increases were “justified” as they were “within the computations” of the DoE.

6 price hikes

Since the beginning of the year, oil firms have raised prices of gasoline and diesel six times to a total of P4.25 per liter and P4.50 per liter, respectively.

The oil companies implemented only one price cut of 75 centavos a liter for gasoline, and 25 centavos a liter for diesel, data from the DoE showed.

Highest since August 2008

Brent oil held steady above $115 a barrel on Wednesday after settling at a near 2-1/2-year high as tension in Libya ratcheted up, spurring fears other producers in the Middle East and North Africa could face similar revolts.

Brent crude for April delivery rose 2 cents to $115.44 a barrel by 0740 GMT. The contract settled up $3.62 or 3.24 percent at $115.42 a barrel on Tuesday, its highest close since August 2008.

In Asian trade, US crude for April delivery rose 33 cents to $99.96 a barrel after hitting an intraday high of $100.64 due to a surprise fall in US crude inventories on lower imports while gasoline stockpiles were down sharply.

“If the unrest continues to spread, Middle East tensions may reach a point where a war could start and that could ignite an incredible rally (in oil prices),” said Ryoma Furumi, a commodities sales manager at Newedge Japan.

Moderate greed

Groups like Kilusang Mayo Uno (KMU) are urging President Benigno Aquino III to “step into the pricing of oil with the goal of reducing prices and moderating the greed of the oil companies.”

KMU said that oil firms in the country were using the political turmoil in North Africa and the Middle East to justify the huge increases in the prices of their products.

“We demand that the government junk the Oil Deregulation Law and control oil prices, as well as remove the value-added tax on oil products,” KMU said in a statement.

Deputy presidential spokesperson Abigail Valte said the recent fuel price hikes were just half the increases that should have been implemented by oil firms.

Valte said Almendras was open to meeting with the Consumer Price Watch of businessman Raul Concepcion that reportedly had a different computation of what the oil price increases should be.

Almendras said on television on Tuesday night that if the government were to reestablish an OPSF, it should be prepared to shoulder potential losses should global prices continue to go up.

He also noted that the country might not have the necessary infrastructure to store huge volumes of fuel given the varying storage capacities of the local oil companies.

The country’s daily fuel consumption was placed at an average of 300,000 barrels.

DoE circular

Amid the turmoil in the Middle East and North Africa, the DoE has issued a circular requiring all oil firms to maintain a minimum inventory.

The circular, published Wednesday, said that with the exception of refiners, oil firms and bulk suppliers shall maintain a minimum inventory equivalent to 15 days supply of petroleum products, excluding liquefied petroleum gas, which shall be maintained at seven days-worth of supply.

Refiners shall maintain a minimum inventory equivalent to 30 days supply consisting of crude oil and refined petroleum products. Currently, there are only two refiners in the Philippines—Petron Corp. and Pilipinas Shell Petroleum Corp.

A circular mandating the inventory requirement was first issued in January 2003, but was lifted after two months when crude prices dropped and the country’s fuel inventory rose.

Almendras said the “current political and civil unrest in several countries in the Middle East requires the reinstatement of the minimum inventory requirements.”

Libyan oil supply cut

In Libya, major oil operations in the eastern part of the country remained under the control of rebel forces. While foreign operators withdrew most of their foreign workers, local Libyan employees can still produce some crude.

Oil experts say at least one million of Libya’s 1.6 million barrels a day of production have been shut down.

Little if any oil can be shipped out of Libya because most ports were closed. Meanwhile, storage tanks were filling up rapidly.

Oil traders said one major oil company cargo ship was supposed to berth this week, but no one was at the port to deliver an oil shipment, and shipping companies were reluctant to send ships into the Libyan ports.

Most fields in Libya are operated by a combination of National Oil Co., which owns 50 percent of the fields, and international consortiums, which share the other half.

Arabian Gulf Oil Co., the largest subsidiary of Libya National Oil Corp., claims it had broken off from its mother company. It said it would honor its contracts but would divert the funds to the opposition, not to Tripoli.

Unrest in Oman

With Libya’s oil exports almost entirely halted for the last several days, renewed unrest in Oman, Iran and Iraq rattled oil traders.

An interruption of shipments from any of those countries would further tighten oil supplies, even as Saudi Arabia has rushed to fill the vacuum of Libyan supplies by pumping more oil from its fields.

In the latest sign that the political contagion was spreading, demonstrators in Oman on Tuesday tried to block a major road leading to the industrial port town of Sohar.

Protesters in recent days have set fire to at least one police station and two government office buildings in the normally stable Persian Gulf country, which is ruled by a family dynasty and is the largest non-OPEC oil producer in the Middle East.

“To have protests in Oman, which had previously been seen as a sleepy gulf kingdom, heightens concerns that nowhere is immune from the contagion affects,” said Helima L. Croft, a director and senior geopolitical analyst at Barclays Capital.

Oman produces 860,000 barrels of oil daily, almost 1 percent of world supplies, and its production has been rising in recent years with investments from Royal Dutch Shell, BP, Repsol and other international companies.

Strategic route

Oman straddles the Strait of Hormuz, a strategic route through which 40 percent of the world’s oil tanker traffic crosses.

On the other side of the strait lies Iran, where security forces were reported to have used tear gas to disperse protesters in Tehran on Tuesday. Iran, with approximately 10 percent of the world’s oil reserves, exports about 3.7 million barrels a day. Reports from Amy R. Remo, Christine O. Avendaño and Christian V. Esguerra, New York Times News Service and Reuters