Oil prices: Rockets and feathers effect

Globally, there are two major oil price benchmarks that are used. The West Texas Intermediate (WTI) and Brent Crude. While the WTI is the main benchmark in the USA and is a key indicator for its oil prices, Brent Crude is the primary benchmark used to price to about two-thirds of the globally traded crude oil. In the Asian market, Dubai Crude is primarily used as the benchmark, our country included. Appropriately, as we get our crude oil supply from the Middle East.

Historically, there were always price differentials between WTI and Brent Crude per barrel. The price differentials though were oftentimes, not that significant. The same was true between Brent Crude and Dubai Crude and the difference was far more insignificant. For instance, while the price differentials between WTI and Brent Crude were between US$2 and US$5 (rarely, it reaches to about US$10), the normal differences between Brent Crude and Dubai were just US$1 before 2026. Currently, however, the price differentials are between US$30 and US$40.

Tracking or establishing our retail prices though is quite complicated. Remember, we import around 95% of our oil needs. Of this, crude oil comprises about 40% (which are primarily imported from the Middle East) and the rest are refined petroleum products (diesel, gasoline, kerosene, etc. that are normally purchased from Singapore, Malaysia, China and South Korea).  Crude oil importation is priced based on Dubai’s benchmark while the refined petroleum products are pegged at Mean of Platts Singapore (MOPS) indices. 

Due to this unavoidable mix (crude and finished products) of importations, retail prices in the country are so diverse and, more often, the price differentials are significant. Generally, Petron’s products are priced lower than the rest. Yes, obviously, as Petron imports crude and processed it in its refinery in Bataan (the only one in the country). On the other hand, the rest are importing refined products. As, currently, both crude and refined products are sold at a premium (refined products’ premium is way higher), Petron’s retail prices are generally lower than the rest. 

Due to this predicament, it is quite difficult to track oil prices in the country. Definitely though, it will be understandable if we delve in a little bit. What is harder to accept is how opportunists are taking advantage of this volatile situation. 

Obviously, in us, driven by greed, there are circumstances wherein certain sectors refuse to be fair and cash in or take advantage in all situations. These are the oil retailers and the public transport operators. As we all know, when global oil prices go up, automatically, oil retailers raise their prices not later than tomorrow. As if they just purchased their inventories today. 

Knowing fully well that our supplies are all imported, it shall take, at least, one or two weeks to arrive.  Therefore, raising it right away has no basis at all. When prices go down, these same retailers do not reduce prices automatically. Well, logically, because what they have in their tanks were purchased when prices were still high. Oil industry players call this the rockets and feathers effect.

It simply means that when crude oil costs go up, retail prices rise or shoot up like a rocket but fall slowly or lazily like a feather when it declines. The question now is, is this legal? One may say, in the absence of a specific law, it is not illegal. While it could be a good excuse, remember that we have a consumer protection law, Republic Act No.7394, otherwise known as the Consumer Act of the Philippines. Enforced by the Department of Trade and Industry (DTI), it is the “primary law protecting consumers against deceptive, unfair, and unsafe business practices.”

And why should we drill down on this religiously? It is because, when fuel prices go up, jeepney operators/drivers will also automatically demand for fare increases, as if the commuters do not already suffer from the consequences of it. As everything, supposedly, goes through a process, they go on strike to pressure regulators to raise fares right away and to the inconvenience of the commuting public. Inversely, when fuel prices go down, they refuse to bring the fares down proportionately. Selfishly, they would like to go through the long process and enjoy the drop in fuel prices to the hilt. Worse, oftentimes, elevated rates stay even if oil prices normalize. 

Simply put, retailers come straight when global prices go down but are cheats when prices go up. On the other hand, Jeepney drivers/operators just cheat in both ways. Absolutely, just pure opportunists.