How to predict oil price adjustments from changes in MOPS and FOREX – a simplified formula

How to predict oil price adjustments from changes in MOPS and FOREX – a simplified formula

Yes, your favorite energy technology and pricing expert has simplified the calculation of oil price adjustments given changes in product MOPS and FOREX since not all the minor cost items change.

The duty paid landed cost inclusive of 12% VAT on imported oil, in $/bbl is:

DPLC $/bbl = (CIF + WHARFAGE + BOE FEE + OCEAN LOSS + DOC STAMPS + DEMURRAGE + CUSTOMS DUTY + SPECIFIC TAX) x 1.12

where FOB = MOPS + PREMIUM (where PREMIUM is usually zero) More »

THE CASE AGAINST OIL DEREGULATION : IT PROVOKED HIGHER PRICES – by Mar Tecson

THE CASE AGAINST OIL DEREGULATION:

IT PROVOKED HIGHER PRICES

[Editor’s Note:  This is the first article on this series that is meant to elicit discussion among our readers on how best we could address the issue of oil pricing under a deregulated environment.  Are we better off today with a deregulated oil industry or should we revert back to a regulated oil industry?   Has deregulation brought the country benefits or allowed the oil companies to increase their prices beyond what is reasonable?  Please feel free to comment and share your views so we could draw up a consensus on a better approach to oil industry regulation.  Cheers.  Marcial] More »

THE CASE AGAINST OIL DEREGULATION – Mar Tecson’s Comment #5

THE CASE AGAINST OIL DEREGULATION – Mar Tecson’s Comment #5

[This is Mar Tecson’s comment to Marcial Ocampo’s response/comment #4.  The reader may add further his views to widen our pool of ideas.  Cheers.  Marcial]

From: Marcelo Tecson <martecson@yahoo.com>

Subject: IT DEPENDS ON WHOSE VIEWPOINT… Re: LET US USE BOTH PROFITABLITY MEASUREMENTS… Re: PER LITER MARGIN is Gateway to PERCENT RETURN on CAPITAL… Re: DEREGULATION AFFECTS MARGIN ONLY… Re: THE TEST OF DEREGULATION IS ON PER LITER MARGIN… Fw: Re: For CEBU C… THE CASE AGAINST OIL DEREGULATION/Let’s oil ourselves More »

THE CASE AGAINST OIL DEREGULATION – Mar Tecson’s Comment #4

THE CASE AGAINST OIL DEREGULATION – Mar Tecson’s Comment #4

[This is Mar Tecson’s comment on Marcial Ocampo’s comment #4.  The reader is advised to add his comments to this blog.  Cheers.  Marcial]

Marcial Ocampo’s response is found in these links:

http://energytechnologyexpert.com/oil-and-gas/oil-crisis/the-case-against-oil-deregulation-–-marcial-ocampo’s-comment-5/

http://www.energyblogs.com/GlobalEnergyNewsandEconomics2009/index.cfm?mode=entry&entry=202A0565-1372-574A-8C6EAE86D63D4E82

From: Marcelo Tecson <martecson@yahoo.com>

Subject: LET US USE BOTH PROFITABLITY MEASUREMENTS… Re: PER LITER MARGIN is Gateway to PERCENT RETURN on CAPITAL… Re: DEREGULATION AFFECTS MARGIN ONLY… Re: THE TEST OF DEREGULATION IS ON PER LITER MARGIN… Fw: Re: For CEBU C… THE CASE AGAINST OIL DEREGULATION/Let’s oil ourselves: Friday, October 2, 2009, 12:48 PM More »

THE CASE AGAINST OIL DEREGULATION – Mar Tecson’s Comment #3

THE CASE AGAINST OIL DEREGULATION – Mar Tecson’s Comment #3

[This is Mar Tecson’s comment to Marcial Ocampo’s response / comment #3 also.  Please add your own comments and suggestions to our ideas.  Cheers.  Marcial]

Marcial Ocampo’s response may be found in these links:

http://energytechnologyexpert.com/oil-and-gas/oil-crisis/the-case-against-oil-deregulation-–-marcial-ocampo’s-comment-4/

http://www.energyblogs.com/GlobalEnergyNewsandEconomics2009/index.cfm?mode=entry&entry=2027F8DC-1372-574A-8C6589DA48D9D0F9

From: Marcelo Tecson <martecson@yahoo.com>

Subject: PER LITER MARGIN is Gateway to PERCENT RETURN on CAPITAL… Re: DEREGULATION AFFECTS MARGIN ONLY… Re: THE TEST OF DEREGULATION IS ON PER LITER MARGIN… Fw: Re: For CEBU C… THE CASE AGAINST OIL More »

THE CASE AGAINST OIL DEREGULATION – Mar Tecson’s comment #2

THE CASE AGAINST OIL DEREGULATION – Mar Tecson’s comment #2

[This is Mar Tecson’s comment to Marcial Ocampo’s response / comment #2.  The reader is encouraged to share also his views to supplement our ideas.  Cheers.  Marcial]

Marcial Ocampo’s response may be found in these links:

http://energytechnologyexpert.com/oil-and-gas/oil-crisis/the-case-against-oil-deregulation-–-marcial-ocampo’s-comment-3/

http://www.energyblogs.com/GlobalEnergyNewsandEconomics2009/index.cfm?mode=entry&entry=201FDC43-1372-574A-8CC2C15B883418B7

From: Marcelo Tecson <martecson@yahoo.com>

Subject: DEREGULATION AFFECTS MARGIN ONLY… Re: THE TEST OF DEREGULATION IS ON PER LITER MARGIN… Fw: Re: For CEBU C… THE CASE AGAINST OIL DEREGULATION/Let’s oil ourselves More »

THE CASE AGAINST OIL DEREGULATION – Mar Tecson’s comment #1

THE CASE AGAINST OIL DEREGULATION – Mar Tecson’s comment #1

[This is the first response from Mar Tecson on Marcial Ocampo’s comment #1.  Cheers.  Marcial]

Marcial Ocampo’s response may be found from these links:

http://energytechnologyexpert.com/oil-and-gas/oil-crisis/the-case-against-oil-deregulation-–-marcial-ocampo’s-comment-2/

http://www.energyblogs.com/GlobalEnergyNewsandEconomics2009/index.cfm?mode=entry&entry=201BEB0B-1372-574A-8C1E067D48AD0432

From: Marcelo Tecson <martecson@yahoo.com>

Subject: THE TEST OF DEREGULATION IS ON PER LITER MARGIN… Fw: Re: For CEBU C… THE CASE AGAINST OIL DEREGULATION/Let’s oil ourselves More »

How to calculate oil price adjustments given changes in product MOPS and foreign exchange rate

How to calculate oil price adjustments given changes in product MOPS and foreign exchange rate

In a deregulated regulatory framework such as in the Philippines, price adjustments on a weekly basis are being implemented by both the three oil majors (Petron, Pilipinas Shell and Chevron/Caltex) and minor industry players (Flying V, Sea Oil, Total, Jetti, Unioil, Eastern, PTT, etc.).

Such adjustments are implemented by each company since the main price determinant of domestic oil prices in the Philippines has shifted to the small incremental volumes brought in by the minor industry players having product inventories of 1-2 weeks only, as opposed to previous crude oil inventories by the two remaining refiners (Petron and Pilipinas Shell) of around 1-2 months of crude.

Product imports are based on the Mean of Platts Singapore (MOPS) which track all major oil trades in the Asian Region while crude oil imports are based on the Dubai crude marker price which tracks all major crude oil exchanges in the Asian and Indian ocean economies.

In my previous blog on oil pricing, the author has presented the step-by-step procedure for calculating domestic price by simply following the oil supply chain: More »

How to calculate oil pump price and determine oil company profitability – a suggested procedure for government regulators and oil companies

How to calculate oil pump price and determine oil company profitability – a suggested procedure for government regulators and oil companies

Finally, your energy technology and pricing expert, Marcial Ocampo, has proposed this action plan to top government officials in the executive and legislative branch of the Philippine Government thru email.  Marcial is hoping that positive action will be accorded to this proposal in order to bring closure to this nagging issue.

This pricing concept with a financial analysis of the oil industry profitability is expected to bring greater understanding on how oil prices should be calculated and imposed on the buying public to ensure that the common interest of the oil supplier and oil consumer are both equitably addressed.

Calculating pump price (cost model)

This paper proposes a transparent procedure for determining domestic pump prices given the MOPS price for imported oil products or DUBAI crude oil price for oil refiners.

The calculation of oil company margin (the portion of the pump price that goes to the oil company since the other costs are pass-thru expenses given to the supplier of oil products, government taxes and other participants in the oil supply chain) is also presented.

I believe that oil company margin based on % of duty paid landed cost (DPLC = FOB + FRT + INS + OCEAN LOSS + DOC STAMPS + BOE FEE + WHARFAGE + DEMURRAGE + CUSTOMS DUTY + SPECIFIC TAX + VAT1) is the most equitable way of providing reasonable returns that could be readily agreed upon by the regulator and oil industry participants. More »

THE CASE AGAINST OIL DEREGULATION – Marcial Ocampo’s comment #5

THE CASE AGAINST OIL DEREGULATION – Marcial Ocampo’s comment #5

[Editor’s Note: Finally, Marcial Ocampo proposed this action plan to top government officials in the executive and legislative branch of the Philippine Government thru email.  Marcial is hoping that positive action will be accorded to this proposal in order to bring closure to this nagging issue.  Let’s pray to that.  Marcial]

From: Ocampo Marcial <mars_ocampo@yahoo.com>

Subject: Fw: IT DEPENDS ON WHOSE VIEWPOINT… Re: LET US USE BOTH PROFITABLITY MEASUREMENTS… Re: PER LITER MARGIN is Gateway to PERCENT RETURN on CAPITAL… Re: DEREGULATION AFFECTS MARGIN ONLY… Re: THE TEST OF DEREGULATION IS ON PER LITER MARGIN… Fw: Re: For CEBU C… THE CASE AGAINST OIL DEREGULATION/Let’s oil ourselves

Dear Readers and Fellow Citizens,

Just sharing with you our continuing discussion on oil deregulation with Mar Tecson.

I believe that oil company margin based on % of duty paid landed cost (DPLC = FOB + FRT + INS + OCEAN LOSS + BOE FEE + CUSTOMS DUTY+ SPECIFIC TAX + DEMURRAGE + VAT1) is the most equitable way of providing reasonable returns that could be readily agreed upon by the regulator and oil industry participants.  VAT1 refers to the 12% VAT applied on the imported oil value adding activities. FOB is the MOPS for products and DUBAI for crudes.

The DPLC is then converted to Pesos per liter given the exchange rate (PhP/US$) and conversion factor from barrels to liters (42 gal/bbl x 3.7854 liters/gal) = 159 liter/bbl approximately. More »

THE CASE AGAINST OIL DEREGULATION – Marcial Ocampo’s comment #4

THE CASE AGAINST OIL DEREGULATION – Marcial Ocampo’s comment #4

[Editor: This is Marcial Ocampo’s response to Mar Tecson’s comment #3. Reader is also advised to contribute his views and comments to enrich further this discussion.  Cheers.  Marcial]

From: Ocampo Marcial <mars_ocampo@yahoo.com>

Subject: Re: PER LITER MARGIN is Gateway to PERCENT RETURN on CAPITAL… Re: DEREGULATION AFFECTS MARGIN ONLY… Re: THE TEST OF DEREGULATION IS ON PER LITER MARGIN… Fw: Re: For CEBU C… THE CASE AGAINST OIL DEREGULATION/Let’s oil ourselves

Hi Mar,

I fully agree with you that in the end, the measure of profitability is the % return on capital which is the ratio of sales volume x margin / capital used in providing the product to the market.

Let’s take the case of a sari-sari store.  He buys goods and adds 10% gross margin.  If he is able to sell his product within a week, his annual return is 10% x 52 weeks/year = 520% per year assuming he reinvest all his capital and earnings and does not withdraw capital or earnings for his upkeep.

In the case of an oil company, if each delivery of product measured as DPLC (FOB + FRT + INS + DUTIES + SPECIFIC TAX + VAT + DEMURRAGE + BOE FEE + OCEAN LOSS) the oil company applies a 3% gross margin, and the oil major has an inventory turnover of 1 month, then his annual gross return is 36% per annum, which he has to budget to pay for his loans, salaries, expenses and capital expansion projects. More »

THE CASE AGAINST OIL DEREGULATION – Marcial Ocampo’s comment #3

THE CASE AGAINST OIL DEREGULATION – Marcial Ocampo’s comment #3

[Editor’s Note: The reader may wish to add his comments to that of Marcial Ocampo on the previous comments by Mar Tecson.  Cheers.  Marcial]

From: Ocampo Marcial <mars_ocampo@yahoo.com>

Subject: Re: DEREGULATION AFFECTS MARGIN ONLY… Re: THE TEST OF DEREGULATION IS ON PER LITER MARGIN… Fw: Re: For CEBU C… THE CASE AGAINST OIL DEREGULATION/Let’s oil ourselves

Hi Mar,

I don’t agree with you that the margin should be monitored in pesos per liter.  What if it doubled from 2.00 to over 5.00 per liter.  It is meaningless unless you also specify how much has the duty paid landed cost (DPLC) of the product or crude has moved also.

So it is important to compute the ratio of margin to DPLC as a % which is similar to % of sales since the amount of capital initially put up to bring the product to our shores is the DPLC.

I own a lending investor company and I measure my margin as a % of my loans receivables, which is similar to an oil company too.  Their receivable is basically the DPLC which they advanced in order to bring the product to us. More »

THE CASE AGAINST OIL DEREGULATION – Marcial Ocampo’s comment #2

THE CASE AGAINST OIL DEREGULATION – Marcial Ocampo’s comment #2

[Editor’s Note: This is my response to Mar Tecson’s 2nd comment.  Cheers.  Marcial]

From: Ocampo Marcial <mars_ocampo@yahoo.com>

Subject: Re: THE TEST OF DEREGULATION IS ON PER LITER MARGIN… Fw: Re: For CEBU C… THE CASE AGAINST OIL DEREGULATION/Let’s oil ourselves

Hi Mar,

This is precisely what my oil calculation model could do.

Given the source / supply cost and exchange rate and other cost factors, and comparing with the actual pump price, my cost model will calculate thru goal seek the actual oil company margin in Pesos per liter and as a % of the duty paid landed cost.

I have monitored the % oil company margin over the last few years when supply and demand was in equilibrium, i.e. all the oil industry players are receiving their fair share of the cost inputs plus their usual profit margins.

Now as we monitor current prices and compare with current international oil prices and exchange rate, the cost model will calculate the actual oil company margin in Pesos per liter and the actual % oil company margin and we then compare it with the historical % oil company margins that they oil company were enjoying prior to the oil crisis of 2008 (i.e. 2007 annual average) when it was generally agreed that there were no outstanding over and under recoveries. More »

THE CASE AGAINST OIL DEREGULATION – Marcial Ocampo’s comment #1

THE CASE AGAINST OIL DEREGULATION – Marcial Ocampo’s comment #1

[Editor’s Note:  This is the expert’s 1st response to the first article on this series that is meant to elicit discussion among our readers on how best we could address the issue of oil pricing under a deregulated environment.  Are we better off today with a deregulated oil industry or should we revert back to a regulated oil industry?   Has deregulation brought the country benefits or allowed the oil companies to increase their prices beyond what is reasonable?  Please feel free to add more comment and share your views so we could draw up a consensus on a better approach to oil industry regulation. Cheers.  Marcial]

From: Ocampo Marcial <mars_ocampo@yahoo.com>

Subject: Re: [CebuPolitics] For CEBU C… THE CASE AGAINST OIL DEREGULATION/Let’s oil ourselves

Dear all,

Kindly visit my website that explains how domestic oil pump prices are calculated and adjusted by the oil companies in response to changes in the world market price (MOPS for finished products importers and Dubai for crude refiners), foreign exchange rate (PhP/US$), freight, insurance, customs duties, specific tax, value added tax, oil company margin, biofuels, oil depot costs, transshipment/barge/shipping, hauling, dealer’s margin, etc.

A careful price build-up will show that both price changes and absolute pump price estimation closely approximate the prevailing retail price at the pumps in response to changes above. More »

Thanks to the visitors of my energy technology and pricing blog – my global audience and expertise

Thanks to the visitors of my energy technology and pricing blog – my global audience and expertise

Since the start of my blog, a number of readers throughout the world have visited my blog.  As an author and blogger, I am deeply honored and very happy with the response and continued interest.

Your support will surely be appreciated as it gives me greater hope that by sharing my expertise and experience, I would be able to foster greater understanding on the various market, technical, environmental, social, economic and financial aspects of providing energy to support global economic growth.

It is only with sustainable and cost-effective provision of energy such as electricity, process heat and space cooling/heating and lighting that both developed and developing economies will continue to provide the growth needed keep the global economy at pace with population growth, otherwise, poverty and underdevelopment will continue.

Again, cheers to our readers worldwide. To those who donated and ordered my spreadsheets on cost of power generation technologies, levelized cost of energy and electricity, simple gas turbine, clean coal technology, etc, a million thanks for supporting your energy technology expert.

Thanks also to a leading energy and exploration company for engaging my services in preparing the market, technical, economic and financial model and feasibility study for a lignite coal-fired CFB and a natural gas-fired CCGT power plants. More »