Energy Technology Expert

Rule of thumb for calculating oil price adjustments due to movement of exchange rate and price of oil

Your favorite energy technology and oil pricing expert again took this initiative of estimating the rule of thumb for most of the petroleum products.

These are based on MOPS for products and in the event there are no latest MOPS for a particular product, I used the historical ratio of MOPS to DUBAI in order to forecast MOPS given latest information on DUBAI.  This ratio basically tells us the incremental cost to refine the DUBAI crude to finished products.

Basic Assumptions:

1) Average 2007 oil company margin in % of DPLC

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

The duty paid landed cost is then converted to equivalent Pesos per liter using the exchange rate and conversion from barrels to liters (1 barrel = 42 gallons, 1 gallon = 3.7854 Liters):

DPLC PhP/Liter= (DPLC  $/bbl) x (48.00 PhP/$) x (bbl / 158.9868 Liters)

= DPLC x FOREX / 158.9868

Based on the author’s monitoring of 2007 annual average MOPS, exchange rate and pump price, the oil company margin as % of DPLC is shown below:

% OIL COMPANY MARGIN = 14.77% 95 RON, 13.17% 93 RON, 15.29% 87 RON, 30.90% kerosene, 1.34% avturbo, 9.07% diesel, 19.79% fuel oil, 29.28% LPG

OIL COMPANY MARGIN = (DPLC PhP/Liter) x (% OIL COMPANY MARGIN)

The local costs inclusive of 12% VAT on local value adding activities is:

LOCAL COSTS PhP/Liter = (OIL COMPANY MARGIN + BIOFUELS + DEPOT COST + DEALER’S MARGIN  + TRANSSHIPMENT + HAULER’S FEE) x 1.12

Adding the imported costs and local costs we get the final pump price:

PUMP PRICE PhP/Liter = (DPLC PhP/Liter) + (LOCAL COSTS PhP/Liter)

The rule of thumb (SLOPE) is calculated from the change of PUMP PRICE between two periods of different FOB/MOPS and FOREX:

SLOPE = (PUMP PRICE(2) – PUMP PRICE(1)) / (CHANGE IN MOPS or FOREX)

2) Exchange rate from 45 to 50 PhP/$, average of 47.5 PhP/$

3) International price (MOPS) from 70 to 80 $/bbl for liquid fuels, average of 75 $/bbl

4) LPG price from 450 to 500 $/MT, average of 475 $/MT

Rule of thumb (please refer to attached worksheet for calculations – range has been highlighted for your reference):

1) 95 RON (octane rating) gasoline: 14.77% oil company margin on DPLC

0.649 PhP/Liter per 1.00 PhP/$ exchange rate movement

or as example 1.298 PhP/Liter increase when exchange rate deteriorates by 2.00 PhP/$

0.405 PhP/Liter per 1.00 $/bbl international price movement

or as example 0.810 PhP/Liter increase when oil price goes up by 2.00 $/bbl

2) 93 RON (octane rating) unleaded gasoline: 13.17% oil company margin on DPLC

0.639 PhP/Liter per 1.00 PhP/$ exchange rate movement

or as example 1.278 PhP/Liter increase when exchange rate deteriorates by 2.00 PhP/$

0.399 PhP/Liter per 1.00 $/bbl international price movement

or as example 0.798 PhP/Liter increase when oil price goes up by 2.00 $/bbl

3) 87 RON (octane rating) regular gasoline: 15.29% oil company margin on DPLC

0.653 PhP/Liter per 1.00 PhP/$ exchange rate movement

or as example 1.306 PhP/Liter increase when exchange rate deteriorates by 2.00 PhP/$

0.407 PhP/Liter per 1.00 $/bbl international price movement

or as example 0.814 PhP/Liter increase when oil price goes up by 2.00 $/bbl

4) Kerosene (cooking): 30.90% oil company margin on DPLC

0.749 PhP/Liter per 1.00 PhP/$ exchange rate movement

or as example 1.498 PhP/Liter increase when exchange rate deteriorates by 2.00 PhP/$

0.468 PhP/Liter per 1.00 $/bbl international price movement

or as example 0.936 PhP/Liter increase when oil price goes up by 2.00 $/bbl

5) Avturbo (aviation kerosene): 1.34% oil company margin on DPLC

0.565 PhP/Liter per 1.00 PhP/$ exchange rate movement

or as example 1.130 PhP/Liter increase when exchange rate deteriorates by 2.00 PhP/$

0.353 PhP/Liter per 1.00 $/bbl international price movement

or as example 0.706 PhP/Liter increase when oil price goes up by 2.00 $/bbl

4) Low sulfur diesel: 9.07% oil company margin on DPLC

0.585 PhP/Liter per 1.00 PhP/$ exchange rate movement

or as example 1.170 PhP/Liter increase when exchange rate deteriorates by 2.00 PhP/$

0.365 PhP/Liter per 1.00 $/bbl international price movement

or as example 0.730 PhP/Liter increase when oil price goes up by 2.00 $/bbl

5) Low sulfur fuel oil (bunker fuel):  19.79% oil company margin on DPLC

0.683 PhP/Liter per 1.00 PhP/$ exchange rate movement

or as example 1.366 PhP/Liter increase when exchange rate deteriorates by 2.00 PhP/$

0.424 PhP/Liter per 1.00 $/bbl international price movement

or as example 0.848 PhP/Liter increase when oil price goes up by 2.00 $/bbl

6) LPG (cooking and power): 29.28% oil company margin on DPLC

0.736 PhP/kg per 1.00 PhP/$ exchange rate movement

or as example 1.472 PhP/kg increase when exchange rate deteriorates by 2.00 PhP/$

0.071 PhP/kg per 1.00 $/MT international price movement

or as example 0.142 PhP/kg increase when oil price goes up by 2.00 $/MT

The above rule of thumb for each petroleum product are more or less valid under the above given range of exchange rate (45 to 50 PhP/$), liquid fuels (70 to 80 $/bbl) and LPG (450 to 500 $/MT).

I hope you find the information useful in your line of work

Please leave your comments and suggestions or email me.  For more information on oil pricing and other energy technologies, please visit my website:

http://www.energytechnologyexpert.com

Marcial T. Ocampo

Energy Technology & Pricing Expert

Business Development Consultant

mars_ocampo@yahoo.com

energytechnologyexpert@gmail.com