Energy Technology Expert

Philippine Oil Pump Price Bulletin 1 : April 15, 2009

Introduction

The worldwide phenomenon of frequent rise and fall of the international price of crude oil and its roller-coaster effect on the domestic price of petroleum products have brought about the need for a transparent and predictable price adjustment mechanism in order to protect the overall interest of the consuming public, petroleum dealers, oil refiners, importers and marketers of oil-based products.

During period of supply and price stability, the international price of crude oil and finished products is fully reflected in domestic pump prices with all the participants in the supply chain (importers, insurers, refiners, marketers, shippers, haulers and dealers) receiving their fair share of logistics costs and margins, and the government likewise receiving mandated customs duties, specific taxes, wharfage fee, BOE fee, value added tax (VAT) on imported oil and added services.

However during extra-ordinary events such as supply restraints by OPEC, conflicts and tensions in the Middle East and major oil suppliers, speculations in oil futures and commodity exchanges, steep currency depreciation, and stringent environmental requirements, the international price of crude oil and petroleum products suddenly rise and consequently the oil majors and minor industry players naturally raise prices to reflect the cost of new deliveries to replenish working capital, albeit moderated somewhat by stocks bought at previously lower prices and market competition.

Problem of Price Adjustments

Consequently, the problem arise when the international price of crude oil and petroleum products drop significantly following an oil price “spike”. End consumers and lobby groups naturally demand for significant one-time oil price adjustment to fully reflect the drop in the international price of crude oil and petroleum products.

The oil company and minor players are accused of dilly dallying price reductions in contrast with their speedy upward price adjustments. This observation is indeed unfortunate but very popular but a careful analysis reveals that in the same manner that prices were adjusted upwards gradually below international prices, the converse is likewise true that prices are adjusted downwards gradually but higher than international prices in order that upfront under-recoveries are liquidated via delayed over-recoveries.

Hence, the main determinant of equality is for the average international price to be reflected in the average domestic pump price for a defined period, after fully reflecting all the cost factors to bring the product to our country’s shores and after reasonable margin for the upkeep of the oil companies. In this way, there is neither under-recovery nor over-recovery on the part of the oil companies.

Objective of the Philippine Oil Pump Price Bulletin weekly service

The primary objective of this Philippine Oil Pump Price Bulletin is to provide weekly pump price updates given the prevailing past week average or start of the week Peso per US$ exchange rate, Dubai Crude marker $ per barrel, prevailing average petroleum product prices in Singapore, currently in force customs duties, specific taxes, value added tax on oil import, and other supply chain costs such as insurance, freight, oil company margin, dealer’s margin, transshipment & hauling and local value added tax.

Basic Information

Exchange Rate = 47.66 PhP/$ (April 15, 2009 – Philippine Star)

1 US gallon = 3.7854 liters

1 barrel of oil = 42 US gallons = 42 * 3.7854 = 158.9868 liters

Dubai Crude = 49.27 $/bbl (April 14, 2009 – Philippine Star)

Example for Diesel Product (Low Sulfur Diesel):

To reflect producttion cost, a factor of 1.270 to 1.323 is applied on crude cost. However, the reader is advised to use actual posted price (e.g. MOPS).

Singapore Posted Price = 65.17 $/bbl (Dubai x 1.323) (the reader is encouraged to use actual posted price)

PREMIUM = 0.00 $/bbl (assumed)

Freight on Board, FOB = 65.17 + 0.00 = 65.17 $/bbl

Freight, FRT = 1.0329 $/bbl (estimate)

Insurance, INS = (FOB + FRT) * 0.05% = 0.0331 $/bbl

Cargo, Insurance & Freight, CIF = FOB + FRT + INS = 66.2356$/bbl

Wharfage, WFG = 0.0946 $/bbl (estimate)

Board of Energy Fee, BOE = CIF * 0.10% = 0.0662 $/bbl

Ocean Loss Allowance, OCN = CIF * 0.50% = 0.3312 $/bbl

Doc Stamps, DOC = CIF * 0.15% = 0.0810 $/bbl

Demurrage, DMR = actual

Duty, DUT = CIF * 3% = 1.9871 $/bbl

Specific Tax, ST = 0.00 PhP/liter * 158.9868 liter/bbl * $/47.66 PhP

= 0.000 $/bbl

SubTotal 1 = CIF+WFG+BOE+OCN+DOC+DMR+DUT+ST = SUB1

= 68.8140 $/bbl

Value Added Tax on imported oil, VAT1 = SUB1 * 12%

= 8.2577 $/bbl

Duty Paid Landed Cost, DPLC = SUB1 + VAT1 = 77.0717 $/bbl

= 77.0717 $/bbl * 47.66 PhP/$ * bbl/158.9868 liters

= 23.1040 PhP/liter

Oil Company Gross Margin, OCGM = DPLC * 4.53% (assumed half of average 2007 oil company margin)

= 1.0474 PhP/liter

CME Biodiesel Cost, CME = 0.2000 PhP/liter (1% biodiesel estimate)

Oil Depot Cost, ODC = 0.0000 PhP/liter

Dealer’s Margin, DM = 1.2000 PhP/liter

Hauler’s Fee, HF = 0.1140 PhP/liter (depends on distance, estimate)

Transshipment, TS = 0.2000 PhP/liter (estimate)

SubTotal 2 = OCGM+CME+ODC+DM+HF+TS= SUB2

= 2.7614 PhP/liter

VAT on other costs, VAT2 = SUB2 * 12% = 0.3314 PhP/liter

Calculated Pump Price = DPLC + SUB2 + VAT2 = 26.1968 PhP/liter

(NOTE: Current Diesel Pump Price in Commonwealth Avenue, Barangay Old Balara, Quezon City, Philippines is PhP 25.50 per liter more or less. This would indicate that further upward adjustments of PhP 0.50 to 1.00 per liter are still forthcoming to liquidate past week under recovery.)

Pump Price in $/liter = 27.3700 / 47.66 = 0.5743 $/liter

Pump Price in $/US gallon = 0.5743 x 3.7854 = 2.1739 $/US gallon

The reader is advised to survey the diesel pump price in his area and compare with the above calculated pump price.

There will be variances between these calculated pump price and that of the major and minor oil companies due to factors such as oil company gross margin (profitability) and other costs.

Now, do you believe that Oil Companies price their pump prices right?

If you believe in transparency and wish that this Philippine Oil Pump Price Bulletin continue, please let us know more about your specific needs. Posting a comment and providing a feedback is certainly an encouragement.

We could prepare calculations for other products such as Unleaded 93 RON, Premium 95 RON, Super Premium 98 RON, Regular 87 RON, Regular Diesel, Low Sulfur Diesel, Bunker Fuel Oil, Low Sulfur Fuel Oil, Kerosene, Jet Fuel, Avgas, and Liquified Petroleum Gas (LPG).

Please leave your inquiries, comments and suggestions.

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Marcial T. Ocampo

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