The Department of Energy (DOE) is asking Congress to amend the Oil Deregulation Law to provide a framework for the government to intervene and address sudden, prolonged oil price spikes, including the unbundling of the cost of petroleum retail products to determine their true and passed-on costs.
In a letter addressed to the Committee on Energy Chairman Senator Sherwin Gatchalian and Representative Juan Miguel Arroyo, the DOE mentioned several reasons on the prolonged oil price spike due to a continuing rise in world market prices resulting from the sudden global increase in demand and an unanticipated lack of supply.
Demand, which is estimated at 103.22 million barrels a day (as of October 16, 2021 vs. a supply of 100.32 million barrels/day) is attributed to the following:
The surge of economic activities due to the containment of COVID-19 led to a sudden demand in energy utilization, including the demand on oil products in the transportation sector like gasoline and diesel;
The stocking of petroleum products’ inventories as winter approaches to cover demand from October this year to March of next year.
Slowed production due to the current global direction of sourcing energy from low-carbon emitting sources. This has limited the optimum level of production, causing the halt and event withdrawal of investments in the development and expansion of the fossil fuel industry;
International sanctions to oil-producing countries like Iran and Venezuela that stopped the drilling of oil companies and the buying of oil products from these countries.
And Hurricane Ida, a category 4 storm that hit the US gulf coast on August 29 and caused an estimated loss of US crude oil production by as much as 30 million barrels.
The press release said Energy Secretary Alfonso G. Cusi in May 2019 issued a department circular (DC2019-05-0008) requiring the unbundling of oil prices for its data gathering and policymaking function. Upon the opposition of the oil industry players, the circular has been subjected to an injunction by the RTC despite the DOE’s argument that the ‘unbundling policy’ is not violative of the Oil Deregulation Law.
Before the pandemic, the total worldwide supply was more or less104 barrels a day. To cope-up with the supply, the Organization of Petroleum Exporting Countries (OPEC) committed to increase the production and supply of crude oil by 400,000 barrels/day. The OPEC will meet on 4 November 2021 to discuss and reassess the situation.
The Philippines utilizes the equivalent of 425,000 barrels/day, which is around 0.4 percent of the world supply.
The DOE has also met with the oil industry stakeholders to ensure supply while the problem persists, and asked if discounts could be extended to the public, especially to the public transport sector. Supply was assured and some companies (e.g. Jetti, Seaoil, Shell, Phoenix, Unioil) agreed to extend discounts to the public transport industry on top of existing discounts currently given like vaccination and loyalty incentives.
Aside from the Department’s response, a whole-of-government approach and medium and long-term policy directions were also taken in consideration of this matter.
The DOE required the unbundling of the cost of retail products to determine their true and passed-on cost.
The DOE maintains that the unbundling of oil prices would result to greater market transparency by establishing the trends in the prices of oil and finished petroleum products. This, in turn, would help ensure a level playing field within the oil industry, while upholding the best interests of consumers.*PR