I always like watching Solita Monsod’s portion of the evening news on Qtv, where she gives an economist’s view point on certain topics so that common Joe on the street can easily understand. Solita Monsod is a respected economics professor, columnist and a former cabinet minister of the Aquino government. She ran for Senator in a previous election but failed to make it to the magic 12 in order to win a seat in the Senate. Yep, I actually voted for her.
What she tackled this evening was the age old question on whether the Oil Companies are guilty of rigging and keeping the price of gasoline high despite prices on the world market already going down. More specifically the Big Oil Companies (Shell and Petron) who seem slow in adjusting there prices when the small oil players have already lowered theirs.
She explained first the reason why oil prices on the pump don’t reflect quickly the price of oil in the World Market. For the Big Oil players, its because they maintain a 45 day inventory and therefore base their price at the pump on the price they bought their oil from. Since they have larger inventory, it means that they have to sell that oil first in price that is near to what they bought it from plus their profit margin.
Small Oil players are different however. Since basically they are just oil importers and only have a two week inventory of oil, they are more quickly to change their oil prices to the prevailing world crude price.
Why it can’t be manipulated by the big oil companies is because of the competition given by the small oil players and their 2 week inventory plus the fact that Petron, is partially owned by the government and therefore has 4 members on the board representing the government (Nicasio Alcatara, Michael Defensor and two others I forgot) who would easily overturn any unpopular action as a delayed price drop.
She also pointed out that since transport groups don’t have any inventory, they’re the ones who should have no excuse to lower their prices whenever the price of oil goes down. Of course the LTFRB is the one responsible for dictating the price of public transport fare. They also seem to be slow when increasing the price of fares when the price of oil goes up.
Based on past news reports, there were previous criticisms to the government that a price hike in oil would actually do the administration good because of the 12% vat collected in gas at the pump, hence arises the doubts as to whether the government is really in full support of an oil price drop. Plus their resistance to the scrapping of the value added tax (VAT) in oil. But I think its really our country’s creditors who are oppossed to that move and would easily make it difficult for our country to acquire credit if ever we scrap the VAT on Oil.
A few years ago Petron was announcing nearly 200% increase in profits compared to previous years, which is part of their requirement as a publicly listed company to announce their earnings. Hence one of the reasons also that the public doubts that they aren’t fixing the price at the pump.
Then there is Shell of course, who according to some article I read before, is still being questioned as to why they haven’t gone public like Petron did, since it was part of the requirements of the Oil Deregulation law for the oil companies to have at least 10% of their common stock listed at the Philippine Stock Exchange 3 years after the law was enacted. And being a publicly listed company means that your profits can be scrutinized by the public.
I guess the only way we can really find out the truth about oil company profits is when an audit of their books is done.
Category: Oil, Oil Price
