Sunday, July 06, 2008

At the Mercy of the Global Oil Markets?

Roads are blissfully free these days. One can have a ball driving on EDSA, even at peak hours. This is probably because petrol prices are going up almost a peso a day.

Walden Bello fo TNI writes:

What is so shocking about the current state of affairs is that our capacity to influence developments in oil has deteriorated from 25 years ago. Then we had a pro-active energy strategy, we had a government energy complex working to diversify our energy sources and we had mechanisms to influence the domestic
price of oil.

Today, in the era of oil deregulation, we are 100% at the mercy of Chevron-Caltex, Shell and Aramco, which controls Petron — the Philippines formerly state-run oil company. The OPEC countries that dominate the production of crude are often cast as the villains, yet the last few years have been years of record profits for the oil majors.

In the first three months of this year, the five largest US oil companies made a record $36 billion in profits, prompting the Democrats in Congress to push a bill to impose a 25% tax on “unreasonable profits”.

In the Philippines, the subsidiaries of the majors have been doing very well. In 2007, Shell’s net profit rose 54% over 2006, from P4.12 billion to P6.36 billion. Petron’s net profits rose 6.3%, from P6.02 billion to P6.4 billion. These are the reported figures, not necessarily the real profits, which are most likely higher.

The major oil companies act as a cartel and pretty much set whatever price they agree on, with no government intervention and little monitoring. All our officials can do is to exercise what economists call “moral suasion”, but we still have to find an oil company that will allow itself to be swayed by morality.

In the US, it takes four to six weeks before a rise in the price of crude is reflected in the pump price. In the Philippines, with the rapid succession of pump price rises, the truth is we no longer know how prices are being determined.

We don’t know if prices are being determined in response to actual past rises in crude prices or in anticipation of future price rises. Non-transparency is the rule in the oil industry.

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